Bank-Enterprise Relations in the Transitional Economies: Choosing the Model of Financial System

Abstract: The "special relations" between banks and non-financial companies, that take form analogous to the industrial groups in the Western economies, are becoming an important feature of the economies. The commercial banks in the Central and Eastern European countries play an important role, often creating these groups or otherwise initiating them. The paper presents the development of such "special relations" in the Czech Republic, Russia and Ukraine. With the proliferation of these groups (both formal and informal, and of different organizational structure) the financial system of the countries in transition gradually starts resembling the German-Japanese style bank-oriented one. The attempts to create such groups 'from above' in the key sectors of economy (as in Russia and especially Ukraine) are based on perception that they provide a mechanism for long-term investment superior to that of the open stock-market. The evidence from the developing countries shows that in an unstable economic and institutional environment, these groups may well cause more trouble than benefit. So the problem of the regulation of this institutional transition becomes crucial.;