The development of commercial banking in Czechoslovakia and the Czech Republic in the course of market reform since 1990 has coincided with a wave of financial deregulation worldwide, as well as the globalization of banking business. Potentially, the emerging Czech banking sector could have benefited a great deal from this innovative process by tuning its own development to new international standards and expertise. In practice, however, it has taken the whole decade in the Czech Republic for this industry to overcome the infant diseases of mismanagement, connected lending practices and other typical emerging market shortcomings. At the end of this trail-and-error learning process, the Czech commercial banking market is now almost entirely occupied by entities under the control of parent companies from EU countries, as well as branches and subsidiaries of internationally active foreign banks.
This situation creates two types of challenges for the Czech National Bank. On the one hand, as the banking sector regulator, it will be henceforth confronted with risk management practices coming from banks with a long history, experience and an established record. So far, it has had only limited opportunities for acquiring reliable knowledge of specific consequences that the implementation of these practices might have for bank clients used to different treatment. Particularly, valuation of loans to corporate and private borrowers in the Czech economy might lead to different credit allocation decisions, economic and regulatory capital requirements, compared to established industrial economies. On the other hand, the transmission of monetary policy decisions to the investment, production and consumption behavior of the private sector in the course of adapting to different financing mechanisms may create unexpected effects in the observed price setting and real economic activity. This is why the central bank needs to improve its understanding of how bank balance sheet risks, particularly credit risk, can be measured, managed and regulated in the operation of financial institutions that are its prime partners in the domestic financial market. Specifically, the monetary and regulatory authorities must have an up to date, quantifiable picture of both the trends in regulatory treatment of capital requirements for credit risk (developed and disseminated by the BIS), as well as internal procedures and models it is likely to observe in the credit risk management of domestically licensed banks themselves.
The capital budgeting process in large corporations receives considerable attention by the top management. There are two elements which make the selection of investment projects difficult. First, knowledge about the profitability of different projects is decentralized, as division managers usually have an informational advantage over the firm’s headquarters. Second, when external financing is more costly than internal financing the Headquarters has also to worry about generating internally the cash-flow needed to finance the project.
This paper studies the driving forces of business cycles within and across G-7 countries over the period 1961 to 2005. We use the term driving forces in the same manner it is employed in dynamic rational expectations models of the international business cycle variables taken to be exogenous in the model employed by the researcher. Most published work focuses on a single driving variable in isolation with the world divided into home and foreign locations. The most common driving variables are total factor productivity and monetary and fiscal policy shocks.
