Coping in the Subprime Region

Up to February 2009, the global deleveraging pressures appeared to have affected European banks only relative to the degree of the exposure of their investment banking arms to the convulsions of Anglo Saxon financial markets. But during February 2009 the threats of a homegrown crisis were increasingly visible, at its roots the European commercial banks’ strategies of internationalization in CEE. Western European banks had entered banking systems in the region through privatization processes, keen to exploit markets with confident consumers, pent-up demand, and booming activity. As parent banks channelled foreign-currency loans through their subsidiaries, cross-border exposures increased to around €600 billion (The Economist 2009). Concerns revolved around the maturity mismatches between short-term borrowing in international money markets and long-term lending in Eastern European consumer and housing markets. From growth tigers, the region suddenly became subprime.