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The European Bank Coordination Initiative, usually referred to as the ‘Vienna Initiative’, is a framework for safeguarding the financial stability of emerging Europe, first launched in the Austrian capital in January 2009.
Its record in crisis management and crisis resolution has proved so effective that what was originally an ad-hoc body set up as an emergency measure now has a permanent role to play in addressing dangers faced by the region’s financial sector.
The Vienna Institute now functions as a network and virtual think-tank uniting those concerned with the fate of the sector and with the ability to influence it.
At its creation the Vienna Initiative aimed to prevent the real and urgent threat of a large-scale and uncoordinated withdrawal of cross-border banking groups, in effect ‘a run’ on the whole region.
It also worked to ensure that parent bank groups committed to maintain their exposure and recapitalise their subsidiaries as part of the overall balance of payments support to countries helped by IMF/EC macroeconomic support programmes (ie Bosnia and Herzegovina, Hungary, Latvia, Romania and Serbia).
The Vienna Initiative also tried to ensure that national support packages for cross-border banks benefited their subsidiaries in emerging Europe and avoided bias towards ‘home’ by their parents.
Its success in coordinating the actions of IFIs, governments, regulators and banks has since ensured a continued role for it in the region’s response to the Eurozone crisis, in particular in managing deleveraging from eastern Europe. The new focus has also prompted a new name for the body: Vienna 2.0.
The EBRD was one of the main founders of the the Vienna Initiative, which brings together public and private sector stakeholders from EU-based cross-border bank groups in the region, among them:
- International financial institutions (the International Monetary Fund, the EBRD, European Investment Bank and the World Bank)
- European institutions (the European Commission and the European Central Bank as observer)
- Home and host country regulatory and fiscal authorities of large cross-border bank groups
- The largest banking groups operating in the EBRD region.
The Chairman of the Vienna Initiative’s Steering Committee is currently Marek Belka, Governor of the National Bank of Poland.
The European Bank Coordination Initiative or ‘Vienna Initiative’ was born amidst fears that the global financial crisis could provoke a chaotic withdrawal from emerging Europe by cross-border banks
Such a danger was seen off but the lessons learnt from that initial crisis and the success of the Vienna Initiative framework have ensured that it remains in place to deal with new threats to the region.
Its birth dates to 2008 when IFIs, governments and cross-border banks all expressed alarm that the deteriorating financial situation and the lack of coordination between them could exert intolerable strain on the region’s banking infrastructure.
The overall squeeze in the financial sector and concern that state support for ‘home’ banks might force retrenchment in subsidiaries in emerging Europe combined to pose a potent threat to the region.
Six parent banks with a large presence in eastern Europe sent a letter to the European Commission calling for a swift response and for help in ensuring sufficient funding in the region in November 2008.
Their appeal, along with active work by the EBRD and others, set in motion events which led to a meeting at the Austrian Ministry of Finance in January 2009 at which all involved agreed to draw up a joint approach to the crisis.
As part of that approach the heads of the EBRD, EIB and the World Bank Group launched a Joint IFI Action plan to support banks in the region and ensure credit was still available to the region. The plan eventually delivered more than €33 billion.
By the beginning of 2010 the Vienna Initiative’s emphasis was shifting from crisis management to crisis prevention, addressing such regional weaknesses as the lack of local capital markets and exposure to foreign currency movements.
Reflecting this new focus on long-term issues, the Vienna Initiative also set up two working groups, one on the impact of Basel III rules on emerging Europe and the other on the resolution of non-performing loans (NPLs).
The Eurozone sovereign debt crisis that emerged in the summer of 2011 presented new dangers to the region - and a new opportunity for the Vienna Initiative to coordinate a response.
Indeed the Vienna Initiative was relaunched as ‘Vienna 2.0’ in January 2012 , with the aim of avoiding disorderly deleveraging through coordinated action by home and host-country regulators and supervisors and the banks themselves.
The European Bank Coordination Initiative, usually known as the Vienna Initiative, was well placed to address the threats posed the financial sector and eastern Europe by the Eurozone sovereign debt crisis of 2011.
‘Vienna 2.0,’ as it was soon nicknamed, faced dangers of a different kind from those confronted in 2009 but could call on the same networks and approaches to address the problems.
This time the risk was that of excessive and disorderly deleveraging as well as a new credit crunch as home and host regulators struggled to deal with funding strains.
Lack of coordination between regulators, central banks and fiscal authorities threatened to force pan-European banks to hold significantly more capital and liquidity in all their subsidiaries, ring fencing which could have been highly damaging to the region, the banks themselves and, ultimately, their home bases as well.
A Vienna Initiative meeting in March 2012 defined responsibilities for those involved as follows:
- European institutions to play a central role in supervisory coordination, macroprudential oversight and mediation among national authorities
- IFIs to help via surveillance, data collection, policy advice and financial support
- Banking groups and European authorities to cooperate to maintain credit conditions consistent with sustainable economic growth.
Marek Belka, the Governor of the National Bank of Poland, was appointed chairman of the Vienna Initiative’s Steering Committee in June 2012.
Factsheet - April 2012
VI 2.0m reports on Basel III and NPLs - March 29 2012
"The Vienna Initiative and financial stability in emerging Europe," Blogpost - March 26 2012
Vienna 2.0 initiative full forum - March 13 2012
Vienna 2 launched - Jan 16 2012
"Vienna Initiative: timeline for the first phase and the start of ‘Vienna Plus’," Blogpost by Piroska Nagy - April 20 2011
Local currency and capital market development - April 8 2011
Vienna timeline to March 24 2011
European Bank Coordination “Vienna” Initiative moves to meet new challenges - March 18 2011
Role of commercial banks in EU funds absorption
"EBRD’s role in overcoming financial crisis" speech by then EBRD President Mirow - July 24 2009
Last updated 10 September 2012
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