Speculators were able to fleece individuals of their shares and eventually were able to seize control of major companies. These companies, that had the potential to be profitable, were soon losing millions of dollars and defaulting on loans. Many of these problems could have been avoided if Czech banks were used to assessing a firm's financial strength and basing their loan decisions on the firm's ability to repay any loans. Under the old system, banks based their lending decisions on the firm's repayment record. Furthermore, Czech law made it difficult for the bank to seize assets that had been used as collateral for these loans.
Bad decisions concerning loans cost the banks and the government billions of dollars.
Bad investment decisions were not the only source of problem loans. Czech officials charge that top management had systematically looted other banks, such as Investicni a Potovni Banka. Rumors about this bank's problems caused a panic among the bank's depositors and the Czech government forcibly seized control of the bank and its assets. Sources estimate that it will be another six years before the government's bailout agency is able to clean up the financial mess. Suppose that Czech citizens and businesses lose confidence in the safety of the Czech banking system.