The increased public investments in the infrastructure, provided by still comfortable fiscal position (the budget deficit was on average 3% of GDP during the crisis and the government debt is at 34% of GDP, the forth lowest in the Europe) are additional factor for growth. However, although the negative spillover effects of the global and Euro zone crisis to the trade, remittances and FDI’s could be diminished as Euro zone recover, still, the financial system of our SEE countries, that is broadly based on banks, is exposed to the risk of disruptive withdrawal of funds by European banks. Thus, when we assess the crisis’s impact on the financial system in our economies, we should distinguish the two phases. In the first phase of the global crisis, the negative spillover effects were pronounced on the local capital markets, with large portfolio withdrawals by institutional investors. On the other side, in that time, the Vienna Initiative has prevented a systemic banking crisis. However, with the new wave of the Eurozone crisis (extended at the end of 2011), there are many new challenges for SEE countries that should be rightly followed by Vienna Initiative 2. Concerns with respect to Euro zone banks’ deleveraging, due to new capital requirements by the EBA are materialized. The deleveraging by the Euro zone parent banks have affected the SEE credits’ developments and now there is new concern regarding to the upcoming asset-quality review and stress test of the Euro zone banks that could lengthen this process even further.

Implementation of Basel III for liquidity ratios by parent banks may have implications for domestic banks and monetary policy implementation in our countries. The liquid assets of our domestic banks are composed at large portion of domestic CB-bills and T-bills and accordingly, they are without investment rating (S&P BB with stable outlook; Fitch BB+ with sable outlook). This could cause serious disruption of design and effectiveness of monetary policy. Possibly, it could ask for transition from market based instruments to direct measures -such as reserve requirement. Another challenge is to straighten the coordination with the home-host supervisory authorities. It is extremely important and central to the country’s financial stability. NBRM is adequately included in the operation of some of the supervisory colleges, but not for all  2  BIS central bankers’ speeches  Macedonian subsidiaries of foreign banks. As a result, NBRM is not always adequately informed, which could harm its ability to effectively determine the necessary capital level of these banks. In addition, there are still some unresolved gaps in regulatory coordination between home and host countries in the EU Single Supervision Mechanism. And last but not least, the future challange will be impact of Single Resolution Mechanism for a European banking union to our banks and the prospective scaling-back of unconventional monetary policy that could affect the borrowing costs. Summing up, the ongoing international regulatory reform, though primarily intended to promote financial stability, may also have some unintended adverse effects on emerging and developing economies, with SEE region not being an exemption.