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Banking Sector Soundness, Innovation, and Development: Emerging Europe and South Asia. ACES Working Papers, 2012

Kulathunga, Anoma and Rehman, Scheherazade S. (2012) Banking Sector Soundness, Innovation, and Development: Emerging Europe and South Asia. ACES Working Papers, 2012. [Working Paper]

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    Abstract

    While most academic and practitioner researchers agree that a country’s commercial banking sector’s soundness is a very significant indicator of a country’s financial market health, there is considerably less agreement and substantial confusion surrounding what constitutes a healthy bank in the aftermath of 2007+ financial crisis. Global banks’ balance sheets, corporate governance, management compensation and bonuses, toxic assets, and risky behavior are all under scrutiny as academics and regulators alike are trying to quantify what are “healthy, safe and good practices” for these various elements of banking. The current need to quantify, measure, evaluate, and compare is driven by the desire to spot troubled banks, “bad and risky” behavior, and prevent real damage and contagion in the financial markets, investors, and tax payers as it did in the recent crisis. Moreover, future financial crisis has taken on a new urgency as vast amounts of capital flows (over $1 trillion) are being redirected to emerging markets. This study differs from existing methods in the literature as it entail designing, constructing, and validating a critical dimension of financial innovation in respect to the eight developing countries in the South Asia region as well as eight countries in emerging Europe at the country level for the period 2001 – 2008, with regional and systemic differentials taken into account. Preliminary findings reveal that higher stages of payment systems development have generated efficiency gains by reducing the settlement risk and improving financial intermediation; such efficiency gains are viewed as positive financial innovations and positively impact the banking soundness. Potential EU candidate countries: Albania; Montenegro; Serbia

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    Item Type: Working Paper
    Uncontrolled Keywords: Financial Innovation; Banking Sector Soundness; Payment Systems Development; Developing Countries; Financial Crisis; Financial Soundness Measures; Financial Soundness Index
    Subjects for non-EU documents: EU policies and themes > External relations > EU-Asia-general > South Asia
    Countries > Romania
    Countries > Bulgaria
    Countries > Turkey
    Countries > Croatia
    Countries > Macedonia
    Countries > Albania
    Countries > Montenegro (June 2006-on)
    Countries > Serbia (June 2006-on)
    EU policies and themes > Policies & related activities > economic and financial affairs > business/private economic activity
    EU policies and themes > Policies & related activities > economic and financial affairs > Single Market > capital, goods, services, workers
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > American Consortium on European Union Studies > ACES Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 14 Jan 2015 15:06
    Number of Pages: 26
    Last Modified: 14 Jan 2015 15:22
    URI: http://aei.pitt.edu/id/eprint/59197

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