Naslov
Maintaining financial stability in Croatia: The challenges ahead

Autori
Božina Beroš, Marta

Vrsta, podvrsta i kategorija rada
Sažeci sa skupova, sažetak, znanstveni

Skup
Eurasia Business and Economics Society 2012 Conference

Mjesto i datum
Istanbul, Turska, 24.05.2012. - 27.05.2012

Vrsta sudjelovanja
Predavanje

Vrsta recenzije
Međunarodna recenzija

Ključne riječi
financial stability; macroprudential regulation; financial supervision

Sažetak
The terms “financial stability” and “macroprudential” have gained importance in the post-crisis environment. Policymakers have acknowledged that, together with monetary stability, monetary authorities should view financial stability as an equally worthy goal. Thus, it is imperative for countries to develop policies that identify and mitigate systemic risks by creating an effective macroprudential framework. However, many transition countries have not yet developed specific policies, although their monetary authorities often recur to measures of macroprudential practices. An example of this is Croatia – a transition, bank-based economy whose central bank has often recurred to macroprudential measures. Until now they have helped the banking sector to weather the period of financial turmoil without major difficulties. However, as full EU membership approaches, new stability issues emerge, due primarily to recent changes in the EU regulatory and supervisory structure. Against this background, the paper provides an assessment of the main challenges ahead for financial stability in Croatia. We begin by analyzing macroprudential measures used by the Croatian National Bank during the last decade and discussing their results. We then present the current set up of the Croatian financial system and critically discuss the two of the most pressing stability challenges. Specifically, we examine the regulatory possibility of subsidiaries of foreign banks (which also hold the majority of banking assets) transforming to foreign branches with major systemic relevance. We determine what this would mean for supervision in the case of a crisis, and whether this transformation would be attractive to foreign bank-owners in the first place. Then we examine whether supervision of bank groups could be improved from a macroprudential aspect. Namely, we argue that traditional supervision no longer suits the actual situation in Croatia. Therefore, bank groups should be subject to consolidated supervision based on consolidated accounting statements, for macroprudential purposes. Also, Croatian legislation should tailor a better definition of bank groups. The main policy implication of our paper is that the maintenance of financial stability in Croatia will require significant refinements to current regulation, primarily in the area of home and host supervisor-cooperation. At the same time the calibration of regulatory measures will have to recognize explicitly the endogenous interaction between specific types of financial entities and their bank group. It is time to create a comprehensive macroprudential strategy in Croatia – one that will allow enough manoeuvres to its central bank to lean pre-emptively against different instabilities in the system, be it regulatory or economic.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

POVEZANOST RADA