Macroeconomic Management, Financial Sector Development and Crisis Resilience: Some Stylized Facts from Central and Eastern Europe

Emerging Central and Eastern Europe is the region most affected by spillovers of the global financial crisis. However, some countries in CEE appeared to have been more prepared and resilient than others. To draw some lessons on why some countries weathered the negative spillovers of the global financial crisis better than others, we focus on the case of the Czech economy, and subsequently bring in some cross-country evidence from the new EU member states. The derived lessons indicate that it is effective to establish a consolidated supervisor at the national level, ideally within a strong and independent central bank. That, consolidation of financial regulation and supervision facilitates a fast-action response, comprehensive data collection and analysis, and increases respect for the supervisor in the financial community. The lessons further stress the role of macro-prudential supervision ensuring, among others, moderate loan-to-deposit ratios of the banking sector and low dollarization of loans through adequate pricing of foreign exchange risk by banks. Further, a prudent macroeconomic management appears to deliver low interest rate differentials and thus a lower share of reversible capital.