The effect of foreign bank entry on domestic banks in Central and Eastern Europe

In recent decades, especially during the 1990s, financial markets have been liberalised. Banking sectors have been opened for foreign banks,2

based on the premise that gains from foreign entry to the domestic banking system outweigh losses (Claessens et al. 2001). Levine (1996) suggests that foreign banks enhance competition, which leads to a higher quality and greater variety of bank products. Furthermore, they contribute to the development of bank legislation and supervisory systems.