European Regional Science Association
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European Regional Science Association
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The abstract for paper number 286:
Zoltán Gál, Senior research fellow at the Centre for Regional Studies of the Hungarian Academy of Sciences, Pécs, Hungary
Regional Challenges of the Emu: Growing Spatial Inequalities of the Hungarian Banking System in the Light of the Accession
The growing literature on regional finance suggests that credit allocation in regional banking system and the different national banking systems are different according to their stage of development, and frictions also exist across regions within national economies, resulting in different availability of capital. Less developed banking systems - including regional banks as well - have a lesser capacity to promote their economic development and might experience certain disadvantage as a result of the financial integration in Europe. Despite regional and local banks can serve local economic interests better than financial-centre banks whose priorities relate more to the single European and global markets, less advanced banking systems can be controlled more easily by the large universal banks of the financial core areas. This latter argument is refers very much to the accessing countries of Central and Eastern Europe, such as Poland, Czech Republic, Slovenia, Slovakia and Hungary which followed their reintegration into the world financial market in the early 1990s. They not only have to adopt new technologies and the financial behaviour it accommodates, but also have to cope with a legacy of bad debts and a lack of experience in credit risk assessment. Central -Eastern European banking systems are accelerating through some features of the stages of development as a result of competition with more advanced systems and state encouragement of banking development. As European Union membership approaches in Central Europe's more advanced economies, Western European banks are 'aggressively' moving to expand into what will soon be a home market for them. The result is the increasing pressure on margins, as more banks compete for relatively little business. This results in a reversal process of concentration than in the EU, namely the growing number of institutions. Making matters worse for the locals, the foreign banks often boast deeper pockets, greater expertise and more solid reputation. All these challenges, which are to be faced, are common in these countries, but what could be varied from country to country is the spatial and institutional structure of the national banking systems. There is no doubt the main cost of joining the Union and later to the common currency area together with the loss of the national monetary instruments accession countries might experience certain severe disadvantage as a result of the financial integration. Several studies have examined asymmetric monetary shock so far at national level, but only very few have done at regional level and none of them surveyed the possible reaction of the financial sectors in the case of the accession countries' regions.
The paper is concerned with the spatial characteristics and structural transformation of the Hungarian banking system. Financial services became the key sector in the processes of economic transformation and differentiated by uneven regional development. The spatial structure of the banking sector is characterised by a large-scale concentration in Budapest, but the foundation boom of branch offices is also typical in the regions, as the necessity of presence on the local markets, as well as the competition for the retail market stimulate banks to expand their branch networks. Commercial banks, which have their headquarters exclusively in Budapest, largely concentrate only on the collections of deposits in their national network, resulting in capital drainage and net capital loss in most of the regions. The presence of the centralised capital market and the lack of decentralised regional financial system can restrain and slow down regional development in the long run. In this paper I would like to give an overview of the spatial structure and the development tendencies of the Hungarian banking which occurred during the first decade of two-tier banking. Following this I would like to summarise the challenges of the growing international linkages, dependencies, advantages and disadvantages of EU integration facing the Hungarian banking system. I would like to highlights those problems, which are directly derive from the very centralised structure and regional disparities of the banking network especially the situation of the segmented cooperative saving banks network in the rural periphery of the countryside. In the second part of my paper I will present an analysis to demonstrate how the asymmetric monetary shock affects Hungarian regions after the removal of national monetary instruments. Regions do not have sovereignty to apply their own autonomous policy implies therefore different regions could have been affected adversely by the single national monetary policy and in this sense by the EMU's monetary policy. The paper is organised as follows. After the introductory section the spatial and structural characteristics and polarisation of the Hungarian banking system is discussed in the light of its progress made in the last ten years (structural transformation, fulfil the EU direction for the financial markets). I will present a correlation model to demonstrate the affects of the asymmetric monetary shocks on the Hungarian regions. This is followed by an analysis of a possible reorganisation and decentralisation (regionalisation) of the spatial structure of banking at regional level without questioning the pre-eminent role of the national banking centre, but contributing to a more efficient operation of the regional banking structures. In the last instance, I will raise the question becomes whether the national banking system is ready to be fully liberalised and able to withstand increasing competition (with the introduction of the cross-border banking) within the European Monetary Union.
Unfortunately full paper has not been submitted.