Romanian Financial System Reform

Abstract

Taking steps to reduce financial system fragility is important for sustained economic growth. This paper focuses on two questions: What are the key problems of the Romanian financial system? What specific action steps are needed to address these problems and achieve the desired financial reform? We conclude that the current financial system suffers from inadequate restructuring of and weak corporate governance in both enterprises and banks, a lack of appropriate credit culture, poor credit skills, legal and regulatory ambiguities, weak banking supervision, and missing markets and institutions. Major recommendations for reform include (1) implementing effective bank privatization, and removing impediments to foreign ownership; (2) improving the net worth positions and corporate governance structures of industrial firms; (3) focusing initial reform efforts on the banking sector, with subsequent development of capital markets; (4) setting up institutions to facilitate the creation of markets for insurance, mortgages, and other financial markets.