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Overview

„Banking Supervision in Austria and the Measures for Financial Market Stability “ Russian Economic and Financial Forum Vienna, 1st December 2008 Helmut Ettl, Executive Director. Overview. I. The FMA and the Banking Supervision in Austria II. The Measures for Financial Market Stability.

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Overview

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  1. „Banking Supervision in Austria and the Measures for Financial Market Stability “Russian Economic and Financial ForumVienna, 1st December 2008Helmut Ettl, Executive Director

  2. Overview • I. The FMA and the Banking Supervision in Austria • II. The Measures for Financial Market Stability

  3. Financial Market Authority – General Overview (1) • Before the establishment of the FMA, the supervisory activity was performed by the Ministry of Finance (for insurance and banking) and by the Austrian Securities Agency (for securities) • FMA operational as of April 1st, 2002 • Integrated Supervisory Authorityfor the entire Austrian Financial Market • Responsible for the supervision of: • Credit Institutions • Insurance Companies, Pension Funds • Securities Firms, Issuers and the Vienna Stock Exchange

  4. Financial Market Authority – General Overview (2) • Established as an independent institution with own legal personality under public law • Full independence, secured by legal provision in constitutional rank, including: • Budgetary independence (own budget) • Personal independence (own conditions for employment) • Accountable to the Financial Committee of the National Assembly • Total Staff: currently around 205 persons; 233 planned per end of 2008 • Assisted by the Oesterreichische Nationalbank (Austrian National Bank) in the field of Banking Supervision (on site inspections and off-site analysis)

  5. New Organisation of Banking Supervision • FMA is responsible for the prudential supervision including • Legal interpretation • Supervisory proceedings (sanctions and approvals) • Supervisory enquiries • OeNB has to be mandated with all on-site inspections by the FMA • OeNB is responsible for the off-site analyses • Information exchange between the authorities • Joint data base • Regular meetings

  6. Supervisedentities • As of 31 December 2007 the FMA supervises: • 870 credit institutions • 108 insurance companies • 20 Pensionskassen (pension companies) • 318 investment firms • 4 financial conglomerates • Investment funds ( 2351 national, 4891 foreign) • Issuers (435) and the Vienna Stock Exchange

  7. Important indicators of the Austrian Banking Market per 31.12.2007 • Gross Domestic Product (GDP): € 272,7 Billions • Aggregated Total Assets: € 899,5 Billions • Expected Profit on Ordinary Activities: € 5,2 Billions • Cost-Income Ratio: 61,95% • Solvency Ratio: 17,33% • RoE: 8,20% • Subsidiaries in CESE: 73 • Aggregated Total Assets CESE Subsidiaries: € 213,5 Billions

  8. Overview • I. The FMA and the Banking Supervision in Austria • II. The Measures for Financial Market Stability

  9. Background and Aims • Package is based on common Decisions by the European Heads of State and Government • Decisions by the Federal Government • Bills passed in Parliament in the most expedient way • Passed in Lower House on 20. October 2008 • Passed in Upper House on 21. October 2008 • Entered into force on 27. October 2008 (= immediately after publication in Official Gazette) • Aim: Restoring confidence and mitigate financial market turbulences impact on the real economy

  10. Overview of the Measures • Comprehensive and Sustainable Package of Measures • for the strengthening of Banks (and Insurance Companies) • for the protection of Savers • 5 main measures: • Provision of necessary Liquidity; • Equity Strengthening Measures • Safeguarding of individuals’ deposits • Enhanced possibility of FMA to require Capital Add-on • Prohibition of Speculative Short Selling

  11. 1. Provision of Necessary Liquidity Interbank Market Strengthening Act(Interbankmarktstärkungsgesetz) • Banks will establish a “Clearing house” • Banks (and Insurance Companies) will transact via this clearing house • Federal Government shall accept liability for this organisation • Clearing house will offer its services at market conditions (including a premium for the public guarantee) & on a non-discriminatory basis • Federal Government can also guarantee for issuing of securities by banks • Possibility to assume liability up to € 75 billion • Limited until 31. December 2009

  12. 2. Equity Strengthening Measures Financial Market Stability Act(Finanzmarktstabilitätsgesetz) • Enables the MoF to • inject equity capital by way of participation in Banks (and Insurance Companies) • guarantee for their debts • guarantee for debts towards banks • nationalise individual banks (as ultima ratio) by regulation against compensation • Stipulate details and conditions for these measures in a regulation • Privatisation of acquired participations • once measures have achieved their objective and • the capital market situation allows it • Maximum Amountof up to € 15 billion for these Public Measures

  13. 3. Safeguarding of Deposits Amendment of Banking Act • Deposits of physical persons guaranteed in full amount • to avoid bank run • to prevent competitive disadvantages (e.g. towards Germany) • Deposits of legal persons: situation unchanged • 90% of the deposits amounting up to € 20,000.– • Ex post financing system as such remains unchanged • This amendment will take retro-active effect as of 1st October 2008 • Spending of up to € 10 billion covered in Federal Budget for 2008 • From 1st January 2010 deposits of physical persons guaranteed till 100,000.-

  14. Further Provisions 4. Enhanced Possibility of Capital Add On Amendment of Banking Act • Clarification that Capital Add On is a preventive instrument • Can be used even if provisions of Pillar I are fulfilled • Abolition of previous quantitative limitation 5. Prohibition of Speculative Short Selling Amendment of Stock Exchange Act • In order to avoid major disadvantages for the financial market • The FMA is empowered to issue regulations prohibiting or • restricting short selling of certain financial instruments/securities • For a maximum time period for initially 3 months (can be prolonged) • Prohibition or restrictions and the time period must be stipulated for each security individually

  15. Measures taken by FMA to restrict FX-lending Letter of 10. October 2008 to all Austrian banks: • The current situation on the financial markets requires increased dilligence. • Due to high FX- and interest rate volatilities this is particularly true for loans in FX and/or loans in combination with a repayment vehicle. • In the current situation the management of FX- and interest rate risk as required by the law encounters particular difficulties • FMA thus urgently recommends not to grant any further loans in FX to private households. • FMA and OeNB will put aspecific focus on supervising such activities of banks.

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