IFI Partnership for Bank
Sector Stability in
Emerging Europe:
The Joint IFI Action Plan
Presentation at the World Bank-IFC Donor
Conference, Paris
May 25-26, 2009
Piroska M. Nagy
European Bank for Reconstruction and
Development
The reasons for Joint Action

Emerging markets are being hit by the global crisis and
emerging Europe is among the most vulnerable
 General need for joint action:

Alone not enough resources (and even with this all
institutions are running into capital constraints)

Maximize complementarities and comparative
advantage

All IFIs: EBRD, World Bank Group, EIB, IMF. A whole
new world of collaboration

Division of labour also depends on support via public
or private sector: need for both
The reasons for Joint Action
 Specific need in Europe:

Leverage incentives in the continent linked to the
European integration project

Use both the private and official sectors:
collaboration with national authorities as well as
European institutions.
Leveraging the European project : Most integrated
region in the world through trade, finance, firms,
remittances, migration

Trade linkages
30
30
Intraregional Trade, 1997–2007
(Percent of GDP)
1800
1600
25
25
20
20
10
Europe, America, and Asia: Cross Border Claims
on Emerging Economies, 2008:Q3
(Billions of U.S. dollars)
1200
1200
1000
Emerging Europe
Emerging Asia
Emerging America
800
5
1600
1400
15
10
1800
1400
1000
Africa
Middle East
Western Hemisphere
Asia
Europe
EU
15
800
600
600
400
400
200
200
5
Source: IMF
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0
1997
0
4
Financial linkages

0
0
Europe
Asia
America
Clear Case for Collective Action

Europe is well integrated:
– A handful of EU-based banks own much of the
banking sectors in CESE and Baltics
– Similarly in the corporate sector, with links to
banks

Policy response to the financial crisis thus cannot
be only along national lines either in home or host
countries of the large bank groups
– Interdependence yet potential free rider problem without
burden sharing arrangements
– Adverse spill-overs (DI, crowding out of sovereign borrowing)
– Non-cooperative solutions thus would be destructive
Joint IFI Action Plan – The framework

Objectives:

Joint IFI work to address funding needs in a coordinated
way. € 24.5 billion for 2009-2010

Catalyze resources through confidence building and home
government support

Facilitate co-ordination framework that brings together key
stakeholders to overcome collective action problem: Home and
host country authorities; investing IFIs (EBRD, EIB,
IFC/MIGA); IMF; EC; ECB
Joint IFI Action Plan - Progress to
date on its 3 platforms
Platform #1: Joint IFI discussions with key 16 parent
banks on business plans and funding needs are
completed

Commitments to region confirmed; in exchange asking for
good macro-economic environment

Funding needs significant mainly for debt finance, but also
very strong demand for risk mitigation

Trade-off between prudential EC competition rules and
lending
Platform #2: Discussions on task and burden
sharing arrangements (home and host issues)
Joint IFI Action Plan - Progress to
date on its 3 platforms
Platform #3:
Host-country co-ordination of stakeholders. New
dimension: voluntary buy-ins by key parent banks in
the context of IMF programs:

Private-public sector interface, supported by incentives (IMF
and EU support, Joint IFI Action Plan, specific local regulatory
incentives)

All stake holders contribute: device for collective action

Parent group commitment to maintaining exposure and
recapitalize that is linked to IMF program performance

Successfully completed for Romania, Serbia, and Hungary.
Key parent banks, IMF, Joint IFIs, EC, ECB, host and home
country authorities.
EBRD crisis response

Increase in business volume by 30% to EUR 7 billion; getting
capital constrained

Focus on financial sector first because it is in the epicentre of
the crisis and because of its systemic importance

Re-focus on CEE that was supposed to be “graduated” but
also help ETCs and CIS

New methods: Joint IFI Action Plan, EUR 6 billion, well on
track

New instruments: Bank Group lending to Subsidiaries:
Unicredit EUR 432 million to 8 countries 11 subsidiaries and
leasing companies. Others to follow
Even further collaboration is needed
to tackle new challenges
 Second and third wave of crisis impact on the
financial sector.
o
Recapitalisation needs; stress testing of groups
o
Corporate debt
o
Risk mitigation needs for the region
o
Testing bank relations?  the Nordic model
 Address key vulnerabilities: forex exposures :
corner solutions with European support ?
 The objective is to safeguard he European project
Thank you!
Piroska M. Nagy
[email protected]
www.ebrd.com; www.ebrdblog.com
ANNEX
Big albeit differentiated crisis impact
Drops in cross-border claims: bad, but
Emerging Europe is least hit thus far
Cross-border claims of BIS-reporting banks, relative terms
2008Q4, in percent change to previous quarter, exchange rate adjusted
Developing Europe
All developing countries
Developing Asia & Pacific
Developing Latin America &
Caribbean
15.0%
10.0%
5.0%
0.0%
-5.0%
-6.1%
-10.0%
-10.1%
-10.1%
-15.0%
Sep07
-20.0%
Dec07
Mar08
Jun08
Sep08
Dec08
-17.9%
Source: BIS locational dataset 6A, external assets of BIS-reporting banks; Developing Europe excludes Caucasus, Central
Asia, Mongolia and Slovenia
Emerging Europe hit list: a strange
mixture of few countries
Cross-border claims of BIS-reporting banks, relative terms
2008Q4, in percent change to previous quarter, exchange rate adjusted
Russia
Ukraine
Poland
Turkey
Czech Rep.
Moldova
Latvia
0.0%
-0.1%
-2.0%
-4.0%
-4.1%
-6.0%
-8.0%
-8.2%
-10.0%
-9.4%
-7.5%
-7.2%
Developing Europe Average
-12.0%
-14.0%
Source: BIS locational dataset 6A, external assets of BIS-reporting banks vis-à-vis Developing Europe (excludes Caucasus,
Central Asia, Mongolia, Slovenia)
-16.0%
-15.5%
Crisis countries + “innocent bystanders”
Cross-border claims of BIS-reporting banks, absolute terms
2008Q4, change to previous quarter in USD bn, exchange rate adjusted
USD bn
Russia
Turkey
Poland
Czech
Rep.
Ukraine
0
Latvia
-0.030
-5
-4
Moldova
-0.026
-4
-10
-12
-15
-11
-20
-25
-30
Source: BIS locational dataset 6A, external assets of BIS-reporting banks vis-à-vis Developing Europe (excludes Caucasus,
Central Asia, Mongolia, Slovenia)
-35
-33