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: On the Role of Announcements Effects in the Implementation of Monetary Policy –
Latest Developments in the U.S.A. 
Central and Eastern Europe 
Box: Banking in Romania: On the Catching-Up Route 

Financial Intermediaries in Austria 
Banks 
Box: Innovative Financial Instruments for the Transfer of Credit Risk 
Box: The IMF Financial Sector Assessment Program (FSAP) 
Insurance Companies 
Other Financial Intermediaries 

The Real Economy and Financial Markets in Austria 
Nonfinancial Corporations 
Households 
Real Estate 
Stock Market 

Special Topics

Systemic Risk Factors in the Insurance Industry and Methods for Risk Assessment 
Gerald Krenn, Ulrike Oschischnig
This paper offers an overview of the main risk factors in the insurance industry, examining not only insurance-specific risks, but also market and credit risk as well as operational risk, following the risk classification methods used in the banking sector. In addition to illustrating the most frequently used risk assessment methods, this paper also outlines key alternative risk transfer (ART) instruments which allow insurance-specific risks to be transferred to the financial markets, and concludes with a tentative assessment of the relevance to the financial market of insurance-specific risks and of ART instruments.


The Third Quantitative Impact Study (Basel II):
An In-Depth Analysis of Regional and International Results 
Alexander Tscherteu
The most recent survey on the repercussions of the New Basel Capital Accord (Basel II) was conducted within the framework of a worldwide field test for banks entitled "Quantitative Impact Study 3" (QIS 3). In the QIS 3 exercise, banks analyzed their balance sheet assets, applying the new regulatory framework set forth in the new Capital Accord, and assessed the impact of Basel II on their risk-weighted assets (RWA) and, consequently, on their capital requirements. Following a summary report on the QIS 3 results in the Financial Stability Report 5, this study presents a detailed analysis of the results by exposure category as well as a comparison of the results at the national and international level. For the purposes of this study, the Austrian data sample of the participating banks is again tested for possible weaknesses and in some respects expanded to accommodate additional relevant issues with a view to providing an even more accurate picture of the potential effects of the new capital adequacy framework on the Austrian banking industry. Subsequently, the effects of the new framework are analyzed and broken down by exposure category. This analysis serves to show the extent to which the results may vary on account of the size of a bank and the banking sector to which it belongs. The data quality is critically examined in this context and areas are identified in which potential changes may still bear on the impact of the new framework. In a final step, the country-specific result is compared with the global results and the principal reasons for differences observed are pinpointed.

Cultural Risk and Risk Culture: Operational Risk after Basel II 
Roman Buchelt, Stefan Unteregger
Up to now, the New Basel Capital Accord had been discussed only in the context of its effects on lending, costs and the business cycle; now a new catchword is sweeping through the banking community: operational risk. What is new – if at all – for the banking business is only the definition of the concept, but not its content. Operational risk is a sometimes hard-to-grasp cultural risk of an organization hidden in its processes, systems and employees and of a nature very different from credit risk or market risk. Although operational risk is especially hard to quantify, past experience with cases of operational losses shows that simply defining capital requirements does not suffice as a means of risk control or mitigation, but that risk management requires the creation of a risk culture that permeates the entire organization. This article illustrates how operational risk achieved the status of a separate risk category, how the concept evolved and how it found its way into the Basel and EU proposals. A brief description of the various approaches for calculating the capital requirements of operational risk is followed by a more detailed analysis of the respective criteria that need to be met by operational risk management and the effects and benefits of compliance.

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

Legend, Abbreviations
Editorial close: November 6, 2003