17 January 2012

Special meeting of the European Bank Coordination “Vienna” Initiative

The official side of the public/private forum met to coordinate policies vis-à-vis emerging European economies.

Public sector officials from within the European Bank Coordination "Vienna" Initiative met in Vienna on 16 January with the aim of enhancing the coordination of national policies that could impact the economies of emerging Europe.

The meeting brought together supervisors, central banks and fiscal authorities from host and home countries of major cross-border banks, as well as officials from EU institutions (the European Commission, the EBA, the ESRB) and International Financial Institutions (IMF, EBRD, EIB, and the World Bank Group). The ECB participated as observer.

The European Bank Coordination Initiative launched in early 2009 helped preserve financial sector stability in emerging Europe at the height of the global financial crisis. Cross-border banking groups maintained their exposures in emerging Europe and recapitalised their subsidiaries under programmes supported by the IMF and the EU, with positive spillovers to other countries in the region. On this basis, the participation of the private sector in the Vienna Initiative was successful. With systemic risks abating during 2010, the focus shifted towards analysing issues of regional relevance in public-private working groups, such as increasing the use of local currency and developing local capital markets, managing non-performing loans and assessing the impact of Basel III in emerging Europe.

The eurozone crisis has led to renewed risks in the financial sectors of emerging Europe since mid-2011. Market tensions, notably in equity and funding markets, have resulted in significant deleveraging pressures in most countries. In order to respond to intensified funding strains and limited market access, several home and host regulators have tightened liquidity provisions.

The public sector parties within the European Bank Coordination Initiative are keen to cooperate to avoid the emergence of uncoordinated and competing policy responses in Europe’s closely integrated financial markets. They emphasise the need for coordination and effective dialogue in a regional context between home and host country authorities - including regulators, central banks and fiscal authorities - for which the Vienna Initiative offers a forum complementing EU frameworks. In the absence of coordination, excessive and disorderly deleveraging as well as a credit crunch may be the outcome. Although the circumstances are different from 2008/9, there is a similar need for collective action to avoid suboptimal outcomes: this is Vienna 2.0.

It is important that home country authorities internalise the cross-border effects on EU and non-EU countries in formulating their measures, and coordinate the implementation of macro-prudential/regulatory policies and their communication with host authorities. In particular, the recapitalisation plans of international banks submitted to the EBA should be scrutinised by the supervisory colleges for their systemic impact on host economies, taking into account ESRB’s focus on systemic risks.

Host authorities should further the development of local sources of funding as market size permits, so that banks can reduce excessive reliance on capital inflows. Information-sharing between home and host authorities should be stepped up to avoid unnecessary ring fencing of liquidity. Furthermore, in particular, in the event of sales of systemically important subsidiaries, home and host authorities should share information and take each other’s concerns into account.

The international institutions will assess the impact of the aggregate recapitalisation plans on the host countries to identify systemic risks and advise on policy actions. They should stand ready to provide external assistance and financial support to banks in host countries within their mandate and balance sheet capacities. They pledge to collaborate closely to maximise their impact.

The official sector participants of the European Bank Coordination Initiative will elaborate the modalities of these principles in the near future, building on existing EU frameworks and ongoing work and to ensure their effective implementation by inviting major cross-border banks to future meetings. The first such meeting will be hosted by the EC in Brussels in the near future.

Press release

© European Commission