Deregulation and the crisis in transitional banking systems in traditional and newly-established market economies.
At the end of the 1980s the banking system in Poland was de-regulated allowing competitive
forces to operate. This process gave banks freedom to shape their lending policies. Since 1992
a number of banks had begun to report an increase in the number of bad loans. A number of
banks had become insolvent. Analysis of case studies of failed banks showed that managers
made serious mistakes in the decision - making process. Lack of experience of operating in
the market environment could be the most obvious explanation to those phenomena.
However, the analysis of the case studies of the banking de-regulation processes undertaken
in the United Kingdom, the USA, Norway and Finland revealed a very similar pattern of
lending behaviour which also led to deterioration of assets quality and, in extreme cases, to
In spite of different levels of economic development of Poland and the mature market
economies mentioned above, the study indicates the existence of a common pattern of post
de-regulation banking crises. Analysis of the financial de-regulation processesin the case
study countries illustrates the hypothesis, that the nature of the post de-regulation banking
crisis in Poland is similar to the post de-regulation crises observed in mature market
economies. The shock of the regulatory change in the banking industry causes deterioration of
risk management standards, with no respect whether banking de-regulation has been
conducted in a mature market economy or in the transitional economy of Poland. In both
cases the change of regulatory framework caused deterioration of risk management
standards, which negatively affected banks' financial situation.
This study provides also verification of Llewellyn's overreaction hypothesis in the conditions
of a transitional economy of Poland. Findings of the study indicate that the hypothesis
developed upon the experience of mature market economies also applies to the less developed
banking system in Poland.