Turkish Banking. Banking under Political Instability and Chronic High Inflation (review)

Turkey is a major emerging economy, one of the oldest hubs of economic activity and a historic link between the markets of east and west. However, little is known about the structure and evolution of its financial system. The contribution of professors Yener Altunbas, Alper Kara, and Özlem Olgu is, therefore, welcome in all areas of knowledge that are interested in financial systems.

Turkish Banking is a well-informed book about the evolution of the Turkish banking industry over the last thirty years. The greatest contribution of this work is to put together literature on the topic, which is otherwise quite dispersed in a limited number of academic works and Turkish primary sources. The book also provides a quantitative analysis of the industry.

This book does not have an overarching hypothesis or central argument which unifies the different chapters. It follows the style of the literature on banking and financial development, focusing on describing the structure and performance of the industry and its relationship with regulatory events and macroeconomic policy. Nevertheless, two chapters (5 and 6) provide analytical exercises with explicit academic questions.

Following the introduction, the second chapter ("Overview of the Turkish Economy") describes the Turkish economy focusing on the economic and macroeconomic policy in the last three decades in which the authors take into consideration Turkey's political instability. While this overview is succinct and in some sections a little unclear, the chapter fulfills its objective of informing any layperson that may read the book about the economy of that country and its political structure. Chapter 3 ("Trends in the Banking Industry") and Chapter 4 ("A Profile of Turkish Banking") are central to the objective of the book as they describe the structural aspects of the banking industry. The authors compile data that allow them to have a broad view of the industry as well as indicators that help them make comparisons with other national financial systems.

Chapter 5 analyzes the relationship between financial penetration and regional economic growth, in the style of the literature on financial development and growth. This is with no doubt an interesting chapter as there are few studies that undertake this type of analysis at the sub-national level. It would have been more desirable if the authors had worked the econometrics results more and dedicated a little more space to characterizing the relationship between financial variables and growth in the country's different regions.

Chapter 6 provides an analytical exercise on the effects of the 1994 and 2001 financial crises as well as the increased presence of foreign banking in the country and its effect on efficiency in the industry. Their methodology allows the authors to conclude that the incursion of foreign banks, as well as the technological advances seen in the financial industry, had a positive effect on the productivity of Turkish banking.

The nonbanking segments of the Turkish financial system are described in Chapter 7. One thing that stands out is the relatively late emergence of the stock market; however, the authors failed to explain why it evolved so late. Like the majority of emerging countries, overthe-counter transactions play an important role in securities trading. Chapter 8 discusses the future prospects, primarily on matters of the industry's regulation. It points out the importance of advances in the Turkish financial system in terms of the country's bid to join the European Union. The last chapter contains concluding remarks.

The book demonstrates that the historical evolution of the Turkish banking system, both in the long term and in recent years, is almost parallel to that of the banking systems of other emerging economies similar to Turkey's. This reviewer found a striking resemblance with the history of the banking systems in Latin America in both timing and patterns. However, financial penetration indicators (namely, bank credit on gross domestic product...