This Financial System Stability Assessment (FSSA) Update is based on work of the Financial Sector Assessment Program (FSAP) Update team, which visited Austria in November-December 2007. The FSAP Update findings were discussed with the authorities during the Article IV consultation mission in March 2008.
The FSAP Update team comprisedDaniel Hardy (Mission Chief), Li Lian Ong, and Alexander Tieman (all MCM); Erik Lundback (EUR); and Richard Britton and Fernand Naert (both consultants).The FSAP team received excellent cooperation from the authorities and market participants, and a number of the recommendations made during the missions are already being implemented.
The main findings of the FSAP Update are that:
The Austrian financial system is generally robust. The financial system’s rapid expansion into European emerging markets has brought higher profits and diversification, but also greater vulnerabilities, notably to credit risk, including that associated with foreign currency lending, in those countries.
The recent global financial market turmoil has to date not had a major direct effect on Austrian banks, but has increased funding costs and may slow growth, which may eventually affect credit quality.
Prudential regulation and supervision are being enhanced, starting from a high base. Effective implementation of the recently amended bank supervisory framework will require close cooperation between the Austrian National Bank (OeNB) and Financial Markets Authority (FMA). Further strengthening of international supervisory cooperation as an integral part of supervision remains another priority.
The main author of this FSSA Update is Mr. Hardy, with contributions from the rest of the FSAP team.