Incentives, Institutions, and Credit

The Greek banking system went from Why did the Greek banking system move from rapid expansion to a severe crisis, and how did it eventually recover? To answer this question, this book examines how managerial incentives and the surrounding institutional environment shaped the evolution of Greek banking from liberalization and euro adoption through crisis and recovery. It shows how policy, regulation, competition, and political economy interacted to influence banks' balance sheet decisions and risk-taking, with broader consequences for credit supply and financial stability.

The analysis traces this cycle in four parts: the growth phase (1990s 2000s), marked by rapid modernization, falling funding costs, and aggressive competition; the crisis period (2009 2016), when sovereign debt problems, recapitalizations, and surging non-performing loans reshaped the sector; the gradual cleanup and institutional reforms including legal, supervisory, and asset protection schemes that supported the recovery; and an epilogue placing Greece alongside other crisis-hit European banking systems. Drawing on data, historical developments, and institutional analysis, the book highlights how policies, legal arrangements, and established practices influenced the behaviour of banks before, during, and after the crisis.

The result is a practical framework for identifying vulnerabilities on the supply side of banking and designing policies that better align incentives, particularly in bank-centric economies within a monetary union. For banking supervisors, central bankers, policymakers, and bank executives, the book offers insights into how misaligned incentives and institutional weaknesses can contribute to financial instability, and how appropriate reforms can strengthen banking systems and support sustainable economic growth.