Romanian central bank Deputy Governor Cristian Popa said the so-called Vienna II initiative on keeping stability in eastern Europe’s economies through continued lending should be a binding agreement focused on banking groups and not individual countries.
European policy makers will probably seek to get a multilateral commitment of the banks to continue lending in eastern Europe as they plan to prevent “a disordered and rapid credit squeeze,” following increased capital requirements, Popa told reporters in Bucharest today.
The Vienna Initiative group of regulators and policy makers plan to hold talks in March with the banks over a new accord as they try to shield economic growth in eastern Europe against contagion from the euro area’s deepening debt crisis, according to Popa. A first Vienna accord helped in 2009 stabilizes the region as the banks didn’t pull out their money.
“The banks’ commitment must be firm not just a gentlemen’s agreement with optional requirements, as the first time,” Popa said. “I think it would be in the banks’ best interest to agree on such a plan because it levels up the playing field for all lenders.”
New capital and liquidity requirements for the western banks, such as UniCredit SpA, Erste Group Bank AG and Societe Generale SA, which control three-quarters of eastern Europe’s banking system, threaten to curb credit needed to fund the region’s companies and households.
Core Capital Reserves
The European Banking Authority told banks to have core capital reserves of 9 percent by the end of June after writing down their holdings of sovereign debt. That may require an additional 115 billion euros ($152 billion) of capital, according to the EBA.
Austria’s central bank also told its three biggest banks to limit lending in eastern Europe to 1.1 times the funding they can raise locally. It also imposed a capital surcharge whose size depends on their eastern European business.
Austrian lenders own about 39 percent of the Romanian market. Erste’s Banca Comerciala Romana SA is the country’s biggest lender, followed by BRD Group Societe Generale SA.
Romania signed in 2008 the so-called Vienna Initiative, a pledge in the form of a gentlemen’s agreement, from Europe’s biggest nine banks to back their subsidiaries in the country after the collapse of Lehman Brothers Holdings Inc. The accord prevented a capital outflow from the country throughout a two-year recession, according to the central bank.
“I think the involvement of a higher authority such as the Ecofin, the body of European finance ministers, in the Vienna II agreement is possible,” Popa said.