Governance and Restructuring of Commercial Banks

Banking reform in transition economies has been discussed controversially for the past decade and is likely to be a crucial policy issue for at least the next decade to come. Whereas some of the advanced reform countries have made substantial headway with regard to banking reform, some countries still have a long way to go. The recent currency crisis in Russia, for instance, has rendered almost the entire banking sector insolvent and has burdened policymakers with the task of creating an efficient financial system from scratch. The relevant policy issues are numerous: the problem of non-performing loans on the balance sheets of commercial banks has to be dealt with, the macroeconomic implications of banking reform need to be considered, an appropriate regulatory framework needs to be chosen and enforced, and the optimal sequence of internal and external financial liberalization must be selected. Eventually, reforms must solve the complicated issue of how to establish proper incentive, i.e. corporate governance mechanisms, in the banks and how to ensure an efficient intermediation between savers and investors.