Financial Stability Report 16

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• Financial Stability Report 16 (PDF, 2.4 MB) December 2008.

Studies and Analyses

• Difficult Environment for Austria’s Financial System (PDF, 77 kB) Financial Stability Report 16 en Dec 15, 2008, 12:00:00 AM

• Financial Crisis Increases Risk of Recession (PDF, 289 kB) Financial Stability Report 16 en Dec 15, 2008, 12:00:00 AM

• Financial Crisis Affects Real Economy Sectors (PDF, 236 kB) Financial Stability Report 16 en Dec 15, 2008, 12:00:00 AM

• Continued Financial Turmoil Clouds Outlook for Austrian Financial Intermediaries (PDF, 386 kB) Financial Stability Report 16 en Dec 15, 2008, 12:00:00 AM

• The Refinancing Structure of Banks in Selected CESEE Countries (PDF, 335 kB) Walko. Walko – Financial Stability Report 16 Since the onset of the global financial market turbulence in mid-2007 there have been concerns whether and to what extent the unfolding liquidity squeeze may affect banks in Central, Eastern and Southeastern Europe (CESEE). In this note, we present systematic regional and cross-country information about the refinancing structure of the banking sector in selected CESEE countries as at end-2007 and mid-2008 (most recent data, depending on data availability). Thus, we focus on the situation of banks in these countries before external funding conditions deteriorated significantly for some of them, which happened in the second half of 2008 and has become particularly evident since mid-September. We benchmark the region against the euro area, and – where appropriate – against non-European emerging market economies. This exercise is to contribute to a better understanding of the risks to these countries emanating from the global liquidity squeeze, which may turn out to be more persistent and more relevant for the CESEE region than assumed when the turbulence began to unfold in mid-2007. en financial stability, banking sector, Central and Eastern Europe, refinancing G15, G21, G32, O16, O52 Dec 15, 2008, 12:00:00 AM

• ICAAP Implementation in Austria’s Major Banks (PDF, 196 kB) Woschnagg. Woschnagg – Financial Stability Report 16 While Pillar 1 of the regulatory capital framework Basel II stipulates capital requirements for credit, market and operational risk, Pillar 2 focuses on the economic and internal perspective of banks’ capital adequacy. To ensure capital adequacy, banks are required to have an Internal Capital Adequacy Assessment Process (ICAAP) in place that enables them to identify, measure and aggregate all material risk types and calculate the economic, or internal, capital necessary to cover these risks. In addition to this, banks should actively manage their overall risk profile. The ICAAP is essential to the preservation of financial stability and will be subject to a higher degree of supervisory scrutiny in the near future. Under the principle of proportionality, requirements for the ICAAP are in line with banks’ specific characteristics and business models. As a result, a variety of approaches is in use. This paper provides a summary of the information Austria’s eight largest banks (in terms of systemic importance) have to date published on this subject (e.g. annual reports and specific documents in line with disclosure requirements). en capital adequacy, risk-bearing capacity, economic capital, Basel II, Pillar 2, ICAAP, large Austrian banks, risk management G21, G28, G32 Dec 15, 2008, 12:00:00 AM

• The Austrian Carry Trade: What Are the Characteristics of Households Borrowing in Foreign Currency? (PDF, 637 kB) Beer, Ongena, Peter. Beer, Ongena, Peter – Financial Stability Report 16 12% of all Austrian households reporting a housing loan in a 2004 financial wealth survey had borrowed in foreign currency. Given the importance of such “household carry trades,” their peculiar character, and immediate policy concerns, too little is known about the attitudes and characteristics of the households involved. We use the 2004 survey (covering 2,556 Austrian households) to sketch a comprehensive profile of the attitudes and characteristics of the households involved. For this purpose, we employ both univariate tests and multivariate multinomial logit models. Our analysis suggests that risk-loving, wealthy, and married households are more likely to take out a housing loan in a foreign currency than other households. Housing loans as such are, moreover, most likely taken out by high-income households. These findings may partially assuage policy concerns about household default risk on foreign currency housing loans. en Foreign currency borrowing, mortgages, banking sector, Austria, Swiss francs G21, G15, F34, F37 Dec 15, 2008, 12:00:00 AM

• An Analysis of Credit to the Household Sector in Austria (PDF, 305 kB) Fritzer, Reiss. Fritzer, Reiss – Financial Stability Report 16 This article provides an econometric analysis of the determinants of the aggregate level of credit to the household sector in Austria. These are our most important results: An error correction model explaining real credit shows that the development of this variable has been in line with fundamental macro data in the last years. Thus, contrary to what could be observed for the euro area as a whole, there has been no loan overhang or shortfall over the last years in Austria. A growth decomposition shows that the largest contribution to real credit growth comes from real GDP. Furthermore, in our case, univariate models are doing better in forecasting real credit than vector error correction models. en Loan overhang, household debt, time-series models C22, C32, C53, E51 Dec 15, 2008, 12:00:00 AM

• Corporate Governance and Credit Institutions (PDF, 183 kB) Sauerzopf. Sauerzopf – Financial Stability Report 16 This article examines the concept of corporate governance and provides an overview of the current state of legislation at the European and Austrian level, highlighting the crucial importance of transparency and disclosure requirements as components of corporate governance. A comparison of legal bases in Austria and the EU reveals that Austria’s national implementation of the Banking Directive and its financial market reform in 2007 brought about significant advances in this area for Austrian credit institutions. Good corporate governance at credit institutions is a key factor in maintaining a stable financial market. en Credit Institutions, Corporate Governance, Transparency, Austrian Banking Act G34, K22, M52 Dec 15, 2008, 12:00:00 AM

• Annex of Tables (PDF, 151 kB) Financial Stability Report 16 en Dec 15, 2008, 12:00:00 AM