These developments have limited banks’ ability and willingness to lend. The post-crisis behaviour of euro area banks in Central, Eastern and South-Eastern Europe has been generally cautious, but also responsible. The Vienna Initiative played an important role in preventing a “run for the exits” scenario. On the one hand, euro area parent banks kept their local subsidiaries sufficiently capitalised to avoid bank failures.
On the other hand, they have been unwinding in an orderly fashion their creditor positions towards the region. This deleveraging has contributed to the tightening of credit conditions in many countries in the region. Local subsidiaries were gradually weaned off cheap parent bank funding and forced to compete for the more limited pool of domestic deposits.