European Union proposals for a banking union, including plans to set up a centralized resolution authority, must take into account the needs of lenders in eastern Europe, the Vienna Initiative said.
The initiative, the group of banks, regulators and policy makers that helped prevent an eastern European financial collapse in 2008 and 2009, sent its observations on current proposals to the institutions involved in drawing up the plan. Foreign lenders including Austria’s Erste Group Bank AG (EBS) control about three-quarters of banking assets in eastern Europe.
The European Commission is this year set to design a common policy for shutting down banks to accompany a plan for a single euro-area supervisor. The banking union envisages the European Central Bank overseeing lenders in the euro area and other participating nations by 2014.
“Some specific features of the central, eastern and southeastern European countries make the cross-border resolution process particularly challenging in this region,” the group said. “These include the systemic importance of subsidiaries, or branches, of euro zone-based banks in their local markets, and the fact that subsidiaries in many cases rely on the parent bank not only for funding support but also for all major strategic and financial decisions.”
The role of eastern European countries with western bank units in supervision and resolution of systemic lenders must increase, the Vienna Initiative said. The nations should also be granted “adequate influence” when western banks are involved in resolution, it said.
The European Banking Authority should mediate in decisions that benefit western banks while potentially causing “unintentionally destabilizing effects for the financial system in a host country,” the group proposed.
The observations have been sent to the European Banking Authority, the ECB, the European Systemic Risk Board, and the European Commission, it said.
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