The effects of prudential policy measures on financial stability in post-transition countries

The empirical research of prudential measures effectiveness is still scarce, especially for central and southeast European countries. The aim of this paper is to analyze the effects of prudential policy on financial stability of post-transition bank-oriented countries using panel data analysis approach. Using the sample of central and southeast European countries for the period 1998 – 2010, we found that these measures generally reduce the level of non-performing loans, increase the level of profitability, partially affect banking system liquidity, but do not improve credit to deposit ratio. We point out two main conclusions: (1) prudential measures positively affect banking system stability expressed through financial stability indicators; (2) prudential measures represent important instrument of a central bank orchestra.