Financial Stability Report 48

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• Financial Stability Report 48 (PDF, 4 MB) November 2024

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• Recent developments and macroprudential policy update (PDF, 1,2 MB) en 12.11.2024, 00:00:00

• The impact of the digital euro on Austrian banks from a financial stability perspective (PDF, 1 MB) Gruber, Siebenbrunner, Trachta, Wipf. We study the impact the introduction of the digital euro might have on Austrian banks from a financial stability perspective. The premise is that the digital euro will not bear interest and will be subject to a holding limit. More specifically, we analyze (1) the impact on Austrian banks’ liquidity positions in a liquidity stress scenario and (2) long-run profitability effects on banks’ net interest income and income from payment services. With respect to liquidity risk, we find substantial effects only for extreme scenarios and high holding limits. For instance, at a holding limit of 3,000, the most extreme stress scenario we consider results in outflows of 9.0% of total retail deposits into the digital euro. Besides, 7.4% of banks (accounting for 4.2% of the sample’s total assets) would breach the regulatory liquidity coverage ratio (LCR) threshold of 100%. Smaller banks are disproportionately affected because they have a larger share of retail funding, which leads to higher outflows. The picture is similar with respect to the long-run effects on banks’ net interest income. In a similarly extreme scenario as above, we estimate that the digital euro would cause interest income losses and a drop in the aggregate sample return on equity (RoE) of 51 basis points – the aggregate sample RoE is 14.9% – at a holding limit of 3,000. Smaller banks and less capitalized banks would be affected more strongly. In a more realistic scenario, the effects are substantially lower, with 1.0% of total retail deposits outflowing and the aggregate sample RoE dropping by 5 basis points. Lower holding limits effectively contain adverse outcomes both with respect to interest income losses and liquidity risk. As to the effect on payment services income, it is harder to arrive at reliable estimates given a lack of suitable bank-level data and high uncertainty about the digital euro’s impact on transaction volumes and fees of retail current accounts and about how digital euro transactions and account management will be remunerated. In a tentative estimation, we find an aggregate sample RoE effect of around 26 basis points. By determining the remuneration of the digital euro, the central bank can effectively control the magnitude of this effect. Overall, we conclude that the introduction of a digital euro would not pose a threat to the stability of the Austrian banking system provided the digital euro is subject to a carefully designed holding limit and remuneration model. From a purely financial stability perspective, low holding limits would be preferable to higher ones. en central bank digital currencies, digital euro, financial stability, substitution of bank deposits, liquidity, profitability, business models E42, G21 12.11.2024, 00:00:00

• Systemic risks from commercial real estate lending of Austrian banks (PDF, 1 MB) Barmeier, Liebeg, Rötzer. The commercial real estate (CRE) market in Austria – and many other countries – has been under stress at least since interest rate increases began in 2022. Consequently, the evaluation of financial stability risks in the CRE segment is of high relevance for supervisory authorities and policymakers. This study contributes to this goal by providing an integrated approach to gauge systemic risks associated with CRE financing. Combining macroeconomic information with data on the loan, firm and bank level, we estimate the effect of adverse macroeconomic conditions on CRE loan portfolios of Austrian banks. We find that in an adverse scenario, nonperforming loan (NPL) ratios could increase to levels seen in international historical crises and a sizable share of bank capital could be depleted. Thus, we conclude that CRE loans, in the event of a further deterioration of the economic environment, pose an increased risk to financial stability in Austria. This is in line with the assessment that Austria’s Financial Market Stability Board (FMSB) made in its 41st meeting. en commercial real estate, systemic risk, financial stability G01, G21, G28, R33 12.11.2024, 00:00:00

• From part of the problem to part of the solution: evaluating the effectiveness of borrower-based measures in Austria (PDF, 1,4 MB) Barmeier, Scheuerer. Evaluating macroprudential policies is key to ensuring that measures are implemented effectively. Borrower-based measures were introduced in Austria in August 2022 via the so- called KIM-V regulation that defines sustainable lending standards for residential real estate (RRE) financing. In our evaluation, we provide evidence on how effective these measures have been so far in addressing systemic risks in Austria’s RRE sector. Based on data for lending standards, we find that the KIM-V has halved the share of new lending with a debt service-to-income ratio (DSTI) above 40%. In addition, by applying estimations in a difference-in-differences setting, we find that the ratio of nonperforming loans (NPLs) of RRE loans has decreased by up to 0.5 percentage points since mid-2022. Our findings support the literature, which shows that borrower-based measures effectively reduce systemic risks in the housing sector. de borrower-based measures, KIM-V, financial stability, residential real estate G21, G28, R31 12.11.2024, 00:00:00

• Results of the first dynamic balance sheet stress test in the ARNIE framework (PDF, 763 kB) Hafner-Guth, Puhr, Siebenbrunner, Weiss. de stress test, financial stability G21, G28 12.11.2024, 00:00:00

• Interconnections between the Austrian banking sector and debt securities markets (PDF, 1,1 MB) Moshammer, Nawaiseh. Banks use debt securities markets to finance and refinance their activities and to manage liquidity. Debt securities offer many advantages regarding liquidity management, earnings stability and regulatory compliance. Yet, they also harbor risks in times of economic stress, as seen in the past in connection with bank collapses in the USA. Effective risk management and supervision are important to ensure that interconnected relationships do not compromise financial stability. It is therefore of great benefit if the requirements for issuing and holding financial instruments rest on a harmonized regulatory environment such as that provided by the European Union (EU). At the end of 2023, the majority of debt instruments issued by the Austrian banking sector were held by counterparties from the EU and the euro area. The securities on the banks’ books were also predominantly issued by counterparties from these regions. Refinancing from the EU and the euro area is crucial for the Austrian banking sector, as the strict European regulatory framework effectively reduces banks’ risk profiles. We use empirical data to show the most important trends over recent years (2017–2023). Austrian banks’ debt instruments grew significantly, with the volume of debt securities holdings increasing by 12.3% and that of debt securities issues surging by 50.6%. The counterparty composition shifted on both sides of the balance sheet. For one thing, debt securities issued by monetary financial institutions (MFIs) grew in prominence. For another, Austrian counterparties reduced their holdings, which was offset by a rise in EU and euro area counterparties. The changes highlight the deepening interconnection of banks with debt securities markets. This is addressed by both microprudential and macroprudential supervisory measures. In addition, the greater geographical diversity of counterparties, which are mainly from the EU and the euro area, contributes to a broader distribution of risk. en securities holdings statistics, banks securities holdings, bank securities portfolios, portfolio investment, debt securities, banking statistics, Eurosystem G11, G15, G20, G21, G23 12.11.2024, 00:00:00

• Key financial indicators and macroprudential stance (PDF, 480 kB) en 12.11.2024, 00:00:00

• Key financial indicators and macroprudential stance (XLSX, 25 kB) en 12.11.2024, 00:00:00