Vienna, Austria, January 17, 2012—Public
sector officials from within the European Bank Coordination "Vienna"
Initiative met in Vienna on January 16 with the aim to enhance 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 European Union institutions (the European Commission, the European
Banking Authority, the European Systemic Risk Board) and international
financial institutions (the International Monetary Fund, the European Bank
for Reconstruction and Development, the European Investment Bank, and the
World Bank Group). The European Central Bank participated as observer.
The purpose of the meeting was to exchange views on how to better co-ordinate
national policies in order to avoid adverse cross-border effects in the
context of the ongoing bank deleveraging in advanced Europe and to support
transition toward a more sustainable banking model in emerging Europe.
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 recapitalized their subsidiaries under
programs 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 analyzing 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 euro zone 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
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
emphasize 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 and 2009,
there is a similar need for collective action to avoid suboptimal outcomes:
this is Vienna 2.0.
It is important that home country authorities internalize 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 recapitalization plans of international
banks submitted to the European Banking Authority should be scrutinized
by the supervisory colleges for their systemic impact on host economies,
taking into account European Systemic Risk Board’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
recapitalization 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 maximize 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 European Commission in Brussels
in the near future.
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institution focused exclusively on the private sector. We help developing
countries achieve sustainable growth by financing investment, providing
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in the international financial markets. In fiscal 2011, amid economic uncertainty
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