o_19heefouak9i9v4do11ac41pi7a.pdf

KONSTANTINOS I. LOIZOS
tional Bank of Greece and ETBA by Piraeus Bank in 2002 and the cessation of Investment
Bank’s operation in the late 1990s.
The Karatzas Committee (1987:60) gives an account of the operation of the three
banks which can be considered positive on various grounds. First, development
banks promoted economic development by extending long-term financing to manufacturing,
tourism and shipping, thus promoting import substitution and export
growth. Second, they also aided capital market development through the establishment
of mutual funds, portfolio companies and the management of their own portfolio
of securities. Third, they helped in business development and management
techniques through the supply of equity capital, their participation on boards of directors
of specific companies and their consulting services and also through the establishment
of scientific methods of project appraisal and various studies on certain
sectors of the Greek economy.
On the other hand, Halikias (1978:246-7) provides a negative assessment of government
development banking institutions such as EDFO, IDC and of course ETBA to the
extent that they acted competitively rather than complementarily to the commercial
banks in the area of long-term financing. Their contribution to the supply of venture
capital was minimal while their provision of loans, mainly to large existing oligopolies,
hindered the development of competition in manufacturing. Even their evaluation and
implementation of projects are not considered satisfactory, nor their stance and operation
more helpful to industrial development than that of commercial banks. Finally, in
many cases, the vulnerability of their decisions to external political pressures should be
considered a negative for their contribution to economic development.
The above studies provide the general picture already known in the literature:
development banks were institutions which made some contribution to economic
development but with mediocre financial performance. However, important questions
are left unanswered. How is the development of the financial system in Greece
from regulation to deregulation reflected in the financial historical data of the Greek
development banks? What does this indicate for the nature of these institutions as
financial institutions and probably for their mediocre financial performance?
The argument of this paper is that the operation of development banks can be
seen as the canvas on which financial sector development in Greece is painted. The
ups and downs in the financial characteristics of the banks indicate their great dependence
on the existing financial regime and on government policy priorities. The
structural break after 1982 but especially after 1986-87 in financial policies was reflected
predominantly in the financial statements of development banks –the microcosm
of Greek financial sector development. The birth and operation of the banks
during the 1960s and 1970s and their changing nature during the 1980s and 1990s
was closely related to the incentives given in each period by the government and
the existing institutional structure. The argument that the institutional transformation
of the Greek financial system is reflected in the related transformation of the
nature of development banks is established using the empirical data of their financial
statements.
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