ABSTRACT

The processes of liberalisation, globalisation and integration have dramatically changed the banking landscape around the world. In Europe, two key developments have affected and altered the banking environment. First, in the European Union (EU) the Second Banking Directive opened up the banking sectors of all EU member-countries to other EU banks. The introduction of the Economic and Monetary Union in 1999 contributed to a large and transparent common banking sector. Second, the transition of Central and Eastern European (CEE) countries from centrally planned economies to market economies, which commenced in the late 1980s, crucially changed the banking sectors of these countries. In fact, one could argue that in the pre-transition period they did not have a banking system at all, or at least it was a monobank system in which the central banks performed some commercial banking functions. Consequently, the efficiency of banks in CEE countries was initially very poor and had to be improved so that the banking sector could perform its role adequately.