Banking Crisis in the Czech Republic during the Transition

Abstract

The banking crisis in the Czech Republic continued for almost a decade during the transition because "moral hazard" was embedded in the banking sector, reflecting underdeveloped banking regulations and supervision, delayed privatization, ad hoc rescue programs, and financial injections for collapsed banks by quasi-state money as easy financial tools that mitigated the transition shocks. The situation improved due to the completion of privatization of banks and modification of banking regulations to meet the EU standard. However, the fiscal burden of clearing up the huge non-performing loans that are transferred from banks to the state agencies is still a large issue.