The European Bank Coordination “Vienna” Initiative is a framework for safeguarding the financial stability of emerging Europe and is now helping to counter the impact of the coronavirus pandemic on the region’s banks.
The Initiative was launched at the height of the first wave of the global financial crisis in January 2009. It brought together all the relevant public and private sector stakeholders of EU-based cross-border banks active in emerging Europe, which own much of the banking sectors in that region and hold a significant proportion of government securities.
The Initiative provided a forum for decision making and coordination that helped prevent a systemic banking crisis in the region and ensured that credit kept flowing to the real economies during the crisis.
It specifically sought to limit the negative fallout from nation-based uncoordinated policy responses to the global crisis and to avoid a massive and sudden deleveraging by cross-border bank groups in emerging Europe.
In March 2020, in the context of the covid-19 pandemic, international financial institutions (IFIs), the European Union, monetary authorities and banking regulators began to contact commercial banks to make sure responses to the new crisis were coordinated and take account of the interests of banks across all of Europe, whether inside or outside the European Union or the eurozone.
The EBRD was one of the main founders of the Vienna Initiative, which brings together public and private sector stakeholders from EU-based cross-border bank groups in the region.
Following the widely-acknowledged success of the “Vienna 1.0” initiative in ensuring orderly deleveraging of Eurozone-based banks from Central, Eastern and South-East Europe (CESEE) between 2009 and 2011, there was enthusiasm for the idea of preserving this public-private platform to continue coordination and regular exchange of views and to quickly react if a new crisis erupts.
As the new wave of the Eurozone crisis unfolded towards the end of 2011, signs of a severe credit crunch within the Eurozone and rapid deleveraging in emerging Europe surfaced. Furthermore, serious gaps in regulatory coordination between home and host countries’ authorities once again became apparent.
The result was the formation of “Vienna Initiative 2.0”, with the aim of:
Facilitating home-host country authority coordination and reducing regulatory
volatility and risk.
Helping avert systemic stress through closely monitoring and reporting on cross-border
funding withdrawal of Eurozone-based parent banks in CESEE.
Enabling a quick coordination between relevant stakeholders in case of crisis.
In response to the 2020 crisis, the Vienna Initiative brought together IFIs including the EBRD, the International Monetary Fund (IMF), the World Bank, the International Finance Corporation and the European Investment Bank (EIB).
They were joined by representatives of the European Commission, the national bank in Croatia, which held the EU Presidency at the time, the central bank of North Macedonia, representing the Western Balkans, as well as the National Bank of Poland, and the chair of the European Central Bank’s supervisory board.
Representatives from Ukraine, Belarus and Turkey are likely to be asked to join the participants from central and south eastern Europe in order to determine whether the coordinated response would be relevant for their financial sectors.
Another aim of the Vienna Initiative in the current crisis is to coordinate funding from multilateral development banks such as the EBRD, the World Bank and the EIB aimed primarily at small and medium-sized enterprises in emerging Europe and to assess the absorption capacity for such funding across the region.
Read '10 years of the Vienna Initiative 2009-2019'