The Austrian Financial Market Authority (FMA) has published a supervisory guideline to strengthen the sustainability of the business models of large internationally active Austrian banks today. This sustainability package, which was developed in cooperation with the Oesterreichische Nationalbank (OeNB), is aimed at increasing the capitalization of these banking groups over the medium and long term and rebalancing the refinancing structure of exposed subsidiaries. Moreover, the guideline will ensure that banking groups have adequate recovery and resolution schemes in place that may be required in future periods of distress.
The sustainability package currently applies to Erste Group Bank AG, Raiffeisen Zentralbank Österreich AG and UniCredit Bank Austria AG, given their size, systemic relevance and the complexity of their business models, which also apply to a large number of subsidiaries.
In line with the cornerstones of the guideline, which were published on November 21, 2011, the following three pillars will be implemented with respect to the above-mentioned banks:
- First, to strengthen the sustainability of banking groups’ capitalization, the Basel III standards on common equity tier 1 (CET1) capital must be fully implemented from January 1, 2013, without any related transitional provisions. However, any fully loss-absorbent private and government participation capital subscribed under the bank support package will be included in the capital base according to the transitional provisions. Furthermore, the banking groups will be subject to an additional capital surcharge of up to 3 percentage points of CET1 (depending on the riskiness of banks’ business models) from January 1, 2016.
- Second, to strengthen the refinancing structure of banking subsidiaries and to ensure that it is well balanced, the supervisory authority will continually monitor and analyze – based on quarterly data (starting from end-2011) – the ratio of net new lending to local stable funding. The analysis of past experience has shown that exceeding a reference ratio of 110% can be considered an alarm signal. The results of this monitoring exercise will be discussed and assessed with the competent host and home supervisors in the supervisory colleges to agree on any necessary supervisory measures.
- Third, to ensure that, in the event of crisis, a bank can be reorganized swiftly, effectively and efficiently or, if need be, wound up in an orderly manner, parent institutions are required to submit groupwide recovery and resolution schemes to the supervisory authority by the end of 2012 to prepare for potential crisis situations.
The Austrian supervisory guideline is part of the European supervisory regime. The findings of the regular monitoring exercises will be analyzed and discussed with the competent host and home supervisors in the supervisory colleges and with the European Banking Authority (EBA). On this balance, appropriate risk mitigation measures may have to be adopted and implemented, which ensures a differentiated, market-specific approach.
Developed by Austria’s supervisory authorities, the guideline was subject to an intensive and multi-layered consultation process involving the competent authorities in Austria and abroad, international financial institutions, the European Commission as well as the targeted banks.
The supervisory guideline is available on the websites of the FMA and the OeNB (in English and in German). It is complemented by a description of its prudential and economic motivation, by an impact analysis as well as FAQs.