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The return of political risk: Foreign-owned banks in Eastern Europe

Gabor, Daniela; Kudrna, Zdenek


Zdenek Kudrna


Political risk—risk that investments are damaged by policy action of authorities—increased during the financial crisis due to controversies about the distribution of accumulated losses among stakeholders. Authorities interconnected by cross-border banks considered unilateral policies that minimised losses for domestic stakeholders at the expense of their foreign counterparts. This is at odds both with the assumption behind financial integration which presumes multilateral responses to cross-border shocks and with the typical definition of political risks that ignores the fact that not only host-country, but also home-country authorities can create such risks. This paper recasts the definition of political risk and reviews instances when political risk materialised within the EU banking market between 2007 and 2011. The analysis reveals that the EU regulatory framework needs to be enhanced to contain resurgent political risks systematically rather than through ad hoc interventions of the EU and international bodies.


Gabor, D., & Kudrna, Z. (2013). The return of political risk: Foreign-owned banks in Eastern Europe. Europe-Asia Studies, 65(3), 548-566.

Journal Article Type Article
Publication Date Apr 1, 2013
Journal Europe Asia Studies
Print ISSN 0966-8136
Publisher Taylor & Francis (Routledge)
Peer Reviewed Not Peer Reviewed
Volume 65
Issue 3
Pages 548-566
Keywords political risk, crisis, foreign-owned banks, Eastern Europe, cross-border crisis resolution
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