Romanian and Bulgarian subsidiaries of Greek banks have been funding their parent companies in the local market, analysts at Nomura Research Institute have observed.

According to Joseph Cotterill from the Financial Times there are a lot of ironies here.

"Romanian and Bulgarian subsidiaries of Greek banks are pretty well capitalized but largely that's because their parent institutions supported their subsidiaries under the original Vienna Initiative, in 2009," he writes in an article in his FT blog.

"After all, these countries' property markets were set to tank at that point, and there have been lingering doubts on the region's private balance sheets ever since."

The share of Greek banks in the Bulgarian bank system is about 30%.

Nomura proposes six scenarios, in which the troubles in the Greek banking sector could turn into a problem for Bulgaria or Romania:

- A new Vienna Initiative: Despite an event in the Greek banking system those same banks are still required to maintain capital exposure into Emerging Europe. EBRD and EU provide support and other incentives to make this happen. Such a move however would be difficult and impose additional burdens on an already highly stressed Greek banking sector.

- Business slowdown (least bad outcome): Greek banks severely constrain lending in domestic subsidiaries as parent company funding crowds out domestic business. This is anti-growth for Romania and Bulgaria, though arguably it has already started to occur.

- Greek bank consolidation (bad outcome): Greek banks are forced to consolidate, perhaps into some form of good bank/bad bank set-up. Consolidation causes asset sales in Bulgaria and Romania. With limited foreign interest likely, government or domestic money would be needed, meaning net currency outflow. If a sale was not possible capital withdrawal would then be likely.

- Capital withdrawal (very bad outcome): Greek banks are forced to draw down capital from subsidiary banks to shore up their own balance sheets. The capital flight causes balance of payments stress (requiring reserve utilisation and in Romania's case potentially tapping the precautionary SBA).

- Subsidiary default threat (very bad outcome): Removal of parent company support causes domestic banks to default but EBRD and the Romanian/Bulgarian government step in and nationalise or cause consolidation within Romania to absorb the bank.

- Outright parent company default (worst outcome): Parent company support is removed, capital is withdrawn, there is a fire sale of Emerging Europe assets. (Even if Greek banks were nationalised or bailed out would the Greek government really want to support Romanian and Bulgarian subsidiaries?)