Decentralization of Banks in Eastern Europe and the Soviet Union
Decentralization of Banks in Eastern Europe And the Soviet Union
As Soviet communism collapsed in Eastern Europe in 1989, the countries of Central and Eastern Europe began the unprecedented transition from a centralized command economy to a market economy. The stages of transition included, liberalization, stabilization and privatization. All of these steps required decentralization of government assets and financial institutions. One of the most crucial parts of the transition was the decentralization of the banking system, which wiped out the centrally planned Soviet and Eastern European societies. Unlike most banking systems in market economies, the bank in the centrally planned economies acted as administrative agencies and had almost no common features with any commercial bank. These countries had to accomplish hundreds of years of economic evolution in a matter of a few years. In this paper I want to discuss how the command economy banks were decentralized and the causes of bank failure after decentralization. The second aspect I want to talk about is how laws and regulations were used to recover banks failure and eventually lead to a functioning system of commercial banks.
All of the post-communist countries of Central and Eastern Europe share a common political, economic and social background. The Soviet communism was implemented in the Eastern and Central European countries in the late 1930 's and early 1940 's. This change in government resulted in the transformation of the existing pre World War I political, economic and social structures of the countries. Existing governments were replaced with administrations that controlled the various regions through a standardized set of rules and formal norms that removed all social connections from the earlier years. Under these new rules all political, economic and social activities were controlled by a state dominated single party. When the party fell in 1989, the newly freed countries all took a
As Soviet communism collapsed in Eastern Europe in 1989, the countries of Central and Eastern Europe began the unprecedented transition from a centralized command economy to a market economy. The stages of transition included, liberalization, stabilization and privatization. All of these steps required decentralization of government assets and financial institutions. One of the most crucial parts of the transition was the decentralization of the banking system, which wiped out the centrally planned Soviet and Eastern European societies. Unlike most banking systems in market economies, the bank in the centrally planned economies acted as administrative agencies and had almost no common features with any commercial bank. These countries had to accomplish hundreds of years of economic evolution in a matter of a few years. In this paper I want to discuss how the command economy banks were decentralized and the causes of bank failure after decentralization. The second aspect I want to talk about is how laws and regulations were used to recover banks failure and eventually lead to a functioning system of commercial banks.
All of the post-communist countries of Central and Eastern Europe share a common political, economic and social background. The Soviet communism was implemented in the Eastern and Central European countries in the late 1930 's and early 1940 's. This change in government resulted in the transformation of the existing pre World War I political, economic and social structures of the countries. Existing governments were replaced with administrations that controlled the various regions through a standardized set of rules and formal norms that removed all social connections from the earlier years. Under these new rules all political, economic and social activities were controlled by a state dominated single party. When the party fell in 1989, the newly freed countries all took a
Cited: Boone, P, S Gomulka, and R Layard. Emerging From Communism. Cambridge, MA: MIT P, 1998. Fries, Steven . "The Post-Communist Transition: Patterns and Prospects." Finance and Development Sept. 1998, 3 ed.: 26-30. ProQuest Direct. Gros, Michael , and Alfred Steinherr. Economic Transition in Central and Eastern Europe: Planting the Seeds. London: Cambridge UP, 2004. Lavigne, M. The Economies of Transition. London: Macmillan, 1999. Thompson, William . "What Kind of Financial Safety Net in Russia? Russian Banking Reform." Post-Communist Economies. June 2004: 115. ProQuest Direct.