Transformations  in
Business & Economics

IMPACT OF INSTITUTIONS, FINANCIAL REFORM AND ECONOMIC GOVERNANCE ON BANK PERFORMANCE
Alin Marius Andries, Simona Mutu, Silviu Gabriel Ursu

ABSTRACT.In this paper we analyse the impact of institutions, financial reform and economic governance on bank performance in 17 countries from CEE for the period 2005-2012. Our empirical results suggest that financial openness has a negative influence on bank performance that becomes stronger during crisis. Business freedom and monetary freedom exert a positive influence on bank performance, while trade freedom a negative one. The overall globalization index has a negative impact on bank profitability, albeit a significant and positive influence when looking at the economic component. A strict control over corruption and an increase in the government effectiveness could significantly enhance banks profitability. Also, better rules of law enhance banks profitability in the CEE area during crisis, while before they do not act the same. Moreover, the elimination of trade barriers and capital account restrictions during crisis could be harmful for banks profitability .

KEYWORDS: banking, performance, reform, liberalization, integration, Central and Eastern European.

JEL classification: G21, G28, F15, F61.