The “Vienna” Initiative 2.0 - serious business

When we read about bureaucrats, Eurocrats and Central Bankers getting together to discuss vague 'co-ordination' of banking oversight and regulation across Europe, the reflex reaction is a massive yawn. But there are truly serious things afoot. The Vienna Initiative was launched at the height of the credit crisis in order to avoid meltdown in emerging Europe's banking systems. Multilateral and European financing institutions co-operated with international banking groups present in the West and East/Central Europe to ensure adequate liquidity was available, to avoid a stampede for the exits, and generally to try to keep some credit flowing. While credit flows to the real economy in most of CEE were drastically run-down in the crunch period, the system didn't crash, and multinational banking groups like Italy's Unicredit and the Austrians were encouraged to support their CEE subs and branches in a period of genuine stress for those banks.

Two years on, we are hearing about Vienna 2.0 -- the Eurocrisis has spooked the markets sufficiently that, again, banking systems in CEE are suffering from seriously reduced cross-border funding access, and a new credit crunch threatens in emerging Europe (let alone the West), even before bank lending had really recovered from round one. In the Balkans, for example, credit growth was still positively anemic, with high levels of non-performing loans and difficult funding. This has taken another hit recently.

The role of the multilateral DFIs is critical in helping to ensure that Eurozone regulators and CEE regulators do not take measures so driven by local interest that life is made impossible for the cross-border banking groups still active in the region. It may be grey and obscure - but the wonks meeting in Vienna have serious work to do, and it deserves wider attention.

-Jan Cherim

Here is the World Bank's press release with full detail:

Europe and Central Asia - Special Meeting of the European Bank Coordination “Vienna” Initiative