Financial Stability Report 18

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• Financial Stability Report 18 (PDF, 1.8 MB) December 2009.

Studies and Analyses

• Government and Central Bank Support Measures Make an Impact (PDF, 40 kB) en Dec 15, 2009, 12:00:00 AM

• Abatement of Global Crisis (PDF, 686 kB) en Dec 15, 2009, 12:00:00 AM

• Decline in Real Economy's Financing Volumes (PDF, 189 kB) en Dec 15, 2009, 12:00:00 AM

• The Financial Sector Benefits from Improvement in Financial Markets (PDF, 391 kB) en Dec 15, 2009, 12:00:00 AM

• Recent Developments in the Austrian Banking System's Liquidity Situation and the International Regulatory Debate (PDF, 99 kB) Schmitz, Weidenholzer. Schmitz, Weidenholzer – Financial Stability Report 18 Given the tense situation in international money markets, the Austrian Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB) stepped up their liquidity monitoring in October 2008, requiring banks to submit reports on their liquidity situation on a weekly basis. Article 70 para 1 no 1 Federal Banking Act (BWG) provides the legal basis for this requirement, giving the FMA the right to request at any time for the purpose of monitoring credit institutions to present reports in specified form and layout. The new liquidity report is a supervisory and not a regulatory instrument and is without prejudice to the qualitative and quantitative requirements as well as the reporting requirements of Article 25 Federal Banking Act. The regulatory initiatives at the international level are discussed in the second chapter of this article. en Dec 15, 2009, 12:00:00 AM

• Investor Commitment Tested by Deep Crisis: Banking Development in Ukraine (PDF, 133 kB) Barisitz, Lahnsteiner. Barisitz, Lahnsteiner – Financial Stability Report 18 Ukraine’s banking sector was strongly hit by the global economic crisis which began in September 2008 and triggered an extreme output contraction (–20%) in the first quarter of 2009 and a sharp depreciation of the Ukrainian hryvnia (–35%). Loss of confidence in the banking sector and deposit withdrawals (about one-fifth of total deposits) were reined in by large-scale liquidity support by the National Bank of Ukraine, administrative measures and macroeconomic adjustment (unwinding of the current account disequilibrium) in the spring of 2009. However, credit growth (month on month) ground to a halt in early 2009 and confidence in the hryvnia remains fragile in a situation where about 50% of private sector credit stock is denominated in foreign currency. The authorities’ bank recapitalization program, assisted by the structural conditionality of an IMF Stand-By Arrangement, should help banks cope with the persisting deep recession and strongly rising nonperforming loans. While political instability in the run-up to the presidential election early in 2010 could yet derail bank rehabilitation, credit institutions have substantially raised provisioning and started cutting costs and restructuring overdue loans. Continuing support by international financial institutions and sustained commitment by foreign (including Austrian) parent banks and corporations also represent key stabilizing factors. en Dec 15, 2009, 12:00:00 AM

• The Austrian Insurance Industry from a Financial Stability Perspective: an Analysis of the Period from 2002 to 2008 (PDF, 255 kB) Ebner, Ubl. Ebner, Ubl – Financial Stability Report 18 This study, which arose under the OeNB’s expanded financial stability mandate, provides the reasoning for an integrated approach to financial stability analysis. It takes stock of the Austrian insurance sector and provides an assessment of the sector in respect of financial stability. This study is based on data provided by the Financial Market Authority (FMA) that the OeNB periodically analyzes under its expanded financial stability mandate. In order to monitor longer-term developments and trends, the period under review ranges from 2002 to 2008. We find that concentration in the Austrian insurance market and competition have increased and that insurance companies have made efforts in cost and claims management. Compared with the rest of Europe, the Austrian life insurance market still has growth potential. Austrian insurers have diversified their quite considerable debt security portfolios at an increasingly international level. Following the outbreak of the U.S. subprime crisis, profitability fell sharply after having previously grown at a steady rate on the back of a favorable financial market environment, a positive insurance claims trend and Austrian insurance companies’ expansion in Central, Eastern and Southeastern Europe. Although the Austrian insurance industry’s financial ties with the banking sector deepened on the whole, they remained at a relatively small scale. en Dec 15, 2009, 12:00:00 AM

• Quantifying the Cyclicality of Regulatory Capital – First Evidence from Austria (PDF, 202 kB) Kerbl, Sigmund. Kerbl, Sigmund – Financial Stability Report 18 With the financial crisis spreading to the real economy, the discussion about potential procyclical implications of Basel II received a surge of attention. While existing research approaches the topic either from a theoretical perspective or from an empirical perspective that draws on simulated data, we are first in studying the cyclicality of risk weights on the basis of realized data. Furthermore, we are able to differentiate not only between Basel I and Basel II, but also between the Standardized Approach (StA) and the internal ratings-based (IRB) approach. We argue that without knowledge of these approaches’ presumably distinct cyclicality of risk weights, any measure to dampen procyclicality is premature. For this purpose, we first study which banks opt for implementation of the IRB approach and then set up a panel model to quantify the cyclicality of capital requirements. While we find no evidence of cyclicality in portfolios subject to the Basel II StA, we find economically substantial and statistically significant effects in IRB portfolios. en Dec 15, 2009, 12:00:00 AM

• Annex of Tables (PDF, 188 kB) en Dec 15, 2009, 12:00:00 AM

• Notes (PDF, 84 kB) en Dec 15, 2009, 12:00:00 AM