Based on the evidence above, it appears inappropriate to employ prudential regulations that have been designed for the relatively stable, mature banking systems of Western Europe to the relatively unstable, immature banking systems of the CEE countries. Although the need for<sup>tighter prudential</sup> regulations in CEE countries seems clear, however, it is not clear _to what extent_ these regulations should Box 2. **Recent** Banking Problems in Selected Countries of **the Former Soviet Union** _Armenia (1994-present)._ The central bank has closed half of the active banks<sup>since August 1994, but the</sup> nonperforming asset problem of the large banks remains to be tackled. lThe Savings<sup>Bank has negligible capital.</sup> _Azerbajian (1995-present)._ One large state-owned bank is facing a serious liquidity problem,<sup>and new management</sup> has been appointed. Twelve private banks have been closed owing to noncompliance with regulations; three<sup>large</sup> state-owned banks will be insolvent if loan losses are written off.

_Belarus (1995-present)._ Many banks are undercapitalized; forced mergers have burdened some banks<sup>with poor</sup> loan portfolios, the **regulatory environment** is uncertin. _Estonia (1992-95)._ Insolvent banks held 41 percet of banking systemn assets. The licenses of five banks (one large) have been revoked, two major banks were merged and nationalized, and two large banks were merged<sup>and</sup> converted to a loan recovery agency.

_Georgia (1991-present)._ About a third of banks' outstanding loans are hoiperfonming. Most large banks would be insolvent if adequate provisions were made for all nonperforming loans. _Kazakhstan (1991-95)._ Forty percent of assets are to be written off; 80 percent of banks<sup>would be insolvent if all</sup> bad loans were written off. _Kyrgyz Republic (ongoing)._ Eighty to 90 percent of all loans are doubtful. Four small commercial<sup>banks were</sup> closed, and two large state banks are facing problems.

_Latvia (1995-present)._ Two-thirds of audited banks recorded losses in 1994. Eight bank<sup>licenses were revoked in</sup> 1994 and 15 more were revoked during the first seven months of 1995. The subsequent closure<sup>of the largest bank</sup> (with 30 percent of deposits) and two other major banks triggered a banking crisis in the spring of 1995. _Lithuania (1995-present)._ Of 25 banks, 12 small ones art being liquidated, and four larger ones did not meet the capital adequacy requirements. The fourth-largest bank was closed. The operations of two banks, which accounted for 15 percent of deposits, were supported in 1995. There were large-scale deposit withdrawals at the end<sup>of 1995</sup> and the beginning of 19%. A i plan is under implementation.

_Russia (199-present)._ Over 2,500 banks have been established since 1992. n 1994, 110 banks were closed, and 96 were closed in the first eight monihs of 1995. Official estimates of loan arrears were 40 percent of total credit to the private sector at the end of 1995.

_Tajikistan (ongoing)._ One of the largest banks is insolvent One small bank has been<sup>closed, and another (out of</sup> 17) is in the process of liquidation. _Ukraine (1994-present)._ In 1994, many banks did not meet capital and other<sup>prudential regulations. Audits</sup> indicated that one of the five largest banks was insolvent. Approximately 30 percent of loans outstanding were in arrears. 'the authorities intervened in 20 small- and mediunm-sized banks in 1995.

_Uzbekistan (1993-present)._ Almost 10 percent of loans were reported to be overdue<sup>in October 1995.</sup> Source: Lindgren, Carl-Johan, Gillian Garcia and Matthew I. Saal. 1996. _Bank Soundness_<sup>_and Macroeconomic_</sup> _Policy._ International Monetary Fund. Washington, D.C 22