Global financial crisis: The Vienna Initiative's lessons for a fragmenting world

When the effects of the global financial crisis began to reverberate throughout the financial systems of emerging Europe in 2008, some banks approached the EBRD for support. We could have responded on a case-by-case basis,
but it quickly became clear that a far more dangerous scenario was unfolding. The region's banking systems risked collapsing, deepening the distress of their western European parent banks and amplifying financial stress across Europe.

This was the genesis of the Vienna Initiative.

Western European banks had become heavily exposed to emerging Europe through cross-border ownership structures and funding arrangements. Following the collapse of Lehman Brothers, tightening liquidity conditions created a real danger that parent banks would withdraw funding and capital from their subsidiaries, triggering credit contractions – or even a banking sector crisis – and deepening economic decline in host countries, feeding back into the banks' home countries through losses, sovereign stress and declining confidence.

What made the crisis especially challenging was the absence of a framework for managing cross-border banking distress. Existing arrangements had been designed for national crises, not for a regional financial system in which banks, regulators and governments were deeply interconnected. Uncoordinated national responses – including changes to deposit guarantees or public statements discouraging support for foreign subsidiaries – risked triggering a destructive cycle of capital flight, ring-fencing and mutual mistrust.

The broader international response to the financial crisis, particularly through the G20 and major central bank liquidity actions, demonstrated that coordination was possible. But the challenge in emerging Europe was even more complex. It involved a large and diverse group of actors, each with different incentives: home-country authorities seeking to protect domestic banking systems and taxpayers; host countries fearing the collapse of local financial markets; and individual banks with incentives to reduce exposure, even though collective restraint would preserve value for all.

European institutions might have been expected to lead such an effort, but at the time they lacked both mandate and political readiness.

As a result, the International Monetary Fund (IMF) and the EBRD emerged as the key conveners. The IMF, as guardian of macroeconomic and financial stability, provided unprecedented emergency support to governments that could not be seen as bailing out private-bank shareholders. The EBRD, as a major investor and creditor across the region's banking systems, had a direct stake in preventing systemic collapse and came up with innovative group-wide support spanning multiple host countries. Together with Austria, home to several major parent banks, the IMF and the EBRD brought together all key stakeholders: home and host-country central banks and finance ministries, the major cross-border banking groups, other international financial institutions, and European institutions as observers.

The Vienna Initiative created a framework for burden sharing, information exchange and structured dialogue at a moment when panic and unilateral action could easily have made the crisis far worse. Its success depended less on formal legal authority than on aligned incentives, the gravity of the situation, and the willingness of institutions and individuals to act pragmatically. It helped to prevent disorderly deleveraging, reduced the risk of destabilising spillovers and fostered habits of cooperation that later informed European regulatory reforms.
Today, the Vienna Initiative is an integral part of Europe's financial architecture. Future crises will differ in origin and geography, but cross-border financial interdependence will remain a defining feature of the global economy. Despite stronger European institutions, important coordination gaps persist, particularly between public authorities and private financial institutions and between the European Union and its neighbours.

The Vienna Initiative also demonstrates the valuable role that multilateral development banks can play in strengthening the global financial architecture. Because they operate across countries, they are uniquely positioned to internalise policy spillovers that national authorities often overlook. Combined with their governance structures, technical expertise and financial resources, this gives them credibility with regulators, governments and private actors alike – and enables them to serve as effective brokers of collective action when it is needed most. For newer MDBs such as AIIB, the lesson is that cross-border financial resilience depends not only on capital, but also on coordination, trust and institutions able to convene public and private actors around shared risks.

Erik Berglöf | Chief Economist at the Asian Infrastructure Investment Bank (AIIB), former EBRD Chief Economist, Office of the Chief Economist (OCE)

Piroska Nagy Mohacsi | Visiting Professor, London School of Economics and Political Science (LSE), former EBRD Director for Country Strategy and Policy, CSE-Country Strategy and Policy