Financial Stability Report

Opinions expressed by the authors of studies do not necessarily reflect the official viewpoint of the Oesterreichische Nationalbank or of the Eurosystem.

Reports

International Environment 
Economic Developments and Financial Markets 
Box: Are There Signs of a Change in Investors’ Risk Appetite? 
Central and Eastern Europe 

Financial Intermediaries in Austria 
Banks 
Box: Bank Lending Survey for the Euro Area — Results for Austria 
Insurance Companies 
Other Financial Intermediaries 

The Real Economy and Financial Markets in Austria 
Nonfinancial Corporations 
Box: What Financial Systems Contribute to Economic Growth 
Households 
Private Pensions in Austria and Their Role in the Capital Market 
Box: Pension Reform, Risks and Financial Markets

Special Topics

Basel II, Procyclicality and Credit Growth— First Conclusions from QIS 3 
The third Quantitative Impact Study (QIS 3) required the participating banks to apply the regulations of the New Basel Capital Accord (Basel II) to their balance sheet assets to determine the changes to their risk-weighted assets and, consequently, the change in their capital requirements. Since the conclusion of the previous three impact studies (QIS1, QIS2, QIS2.5) a number of modifications have been made to the proposed New Capital Accord, not least because of macroeconomic concerns — particularly in connection with SME lending as well as potentially increased procyclicality. This paper first summarizes the debate on the potential macroeconomic impact of Basel II and, subsequently, analyzes the associated conclusions in light of the QIS3 results for Austria. 

Calibration of Rating Systems — A First Analysis 
Within the context of the implementation of Basel II, the calibration of rating systems will increasingly gain attention in the near future. The present study was based on credit data made available by the credit information bureau Creditreform consisting of some 10,000 data sets for each of the years 1996 through 2001. In this initial attempt to explore the issue of calibration, we restricted our research to static methods. This implies that the estimates of probabilities of default are based on one-year transition rates, and the classification into rating classes relates to a single point in time in each of the years. The dynamics created by an intertemporal approach are, for the time being, taken into account only in the context of a conceptual framework. As to the results of the analyses, it is interesting to note that given the selected static framework, the capital requirement decreases as the number of classes generated using the chosen calibration methods increases. However, were an intertemporal approach to be applied, a natural limit imposed on the number of rating classes would result. Moreover, capital sensitivity to default rate changes also corroborates the need for intertemporal modeling (and sufficiently long data histories). 

Overview of Austrian Banks$ Internal Credit Rating Systems 
As of the beginning of 2003, the Austrian financial institutions have to submit to the OeNB for each borrower reportable under Major Loans Register requirements, in addition to loan amounts, the value of collateral, the amount of specific loan loss provisions and the credit rating. Beside an analysis of the quality of the (major) loans portfolio, these additional reporting requirements permit a more detailed assessment of the quality of credit risk evaluation systems. This report provides an overview of the credit rating systems employed by the Austrian banks. The main focus in analyzing these systems was on their basic orientation (borrower or transaction rating), specialization and completeness, including their degree of differentiation (number of ratings classes). The methodological basis, the information content and the basis for risk measurement were also studied.

Credit Derivatives — Overview and Implications for Monetary Policy and Financial Stability 
This nontechnical paper serves two purposes: First, we aim to provide a concise description of the credit derivatives market. Second, we attempt to analyze the aggregate effects of credit derivatives from a macroeconomic perspective. Given that credit derivatives are expected to have an impact on credit markets, we describe their implications for the financial system and the conduct of monetary policy. 

Annex of Tables
International Environment 
Financial Intermediaries in Austria 
The Real Economy and Financial Markets in Austria 

Legend, Abbreviations 124
Editorial close: April 29, 2003