#06-16
Cross-Border Banking in Central and Eastern Europe
Thomas Caspar Altmann, August 2006
Abstract: Over the past two decades, the world of banking has experienced an
unprecedented trend towards internationalization, which has led to new demands on the
regulatory and supervisory framework designed to ensure safety and stability in the
banking sector. Central and Eastern Europe (CEE) is a region that has seen a particularly
stunning increase in international banking presence. Banks from nearby Austria and the
rest of Western Europe expanded their ‘home markets’ to the formerly communist
countries during the large scale privatization programs of state-owned banks. Due to
these massive privatizations to foreign financial institutions in the late 1990s and early
2000s, necessitated by the burden of bad debt problems inherited from communist times
and inefficient banking markets, six of the discussed CEE countries rank among the top-
10 in the ranking of foreign ownership of banking assets. This characteristic of high
foreign ownership of the banking market in CEE is coupled with a large presence and
concentration of ownership with EU-15 and especially Austrian banks. Austria is
currently the largest foreign investor in terms of control of banking assets in the Czech
Republic, Slovakia, Hungary, Romania, and Croatia. Thus, regulatory and supervisory
concerns about cross-border banking are an especially important topic in CEE and
Austria as the stability of the entire financial system of the region depends on a smooth
function on the financial sector.
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