Reports
Calendar of Monetary and Economic Highlights
Economic Background
Money and Credit in the First Half of 1999
Balance of Payments in the First Quarter of 1999
Austria’s International Investment Position in 1998
Studies
Effects of the Euro on the Stability of Austrian Banks
Following the launch of the euro, the type and scope of the risk exposure of Austrian banks has changed. This study analyzes significant developments in the banking business that have been induced by the introduction of the euro and identifies potential areas of risk or threats to the profit potential of Austrian banks. Basically, the analysis suggests that, also for Austrian banks, reducing excess capacity will become an even more pressing order, and that it will take structural adjustments − such as reducing the density of branch networks and cutting costs − to enhance banks’ efficiency and profitability. Amid increasing competition, strategic positioning coupled with adequate flexibility will be a key ingredient for success. Given the comparatively low degree of concentration in the Austrian banking sector, the future is bound to bring more mergers. How banks fare in the face of specific risks will depend above all on their ability to adapt both to new markets and to changing framework conditions in existing markets.
The Austrian Banks at the Beginning of Monetary Union − The Effects of Monetary Union on the Austrian Banking System from a Macroeconomic Perspective
The aim of this study is to explore the potential impact of Monetary Union on the role that Austrian banks play in the transfer of funds between borrowers and lenders. Disintermediation tendencies in recent decades have reduced the relative importance of the banks’ core function, which within the scope of this study is understood as the transformation of savings into investments at the banks’ own risk. Credit institutions have responded to those trends by expanding into alternative markets and/or business segments: by developing into universal banks or financial supermarkets, by stepping up cross-border and financial market activities, and by diversifying more strongly into those areas that have disappeared from bank balance sheets as a consequence of disintermediation. With the disappearance of currency barriers, banks across the euro area have obtained access to primary liquidity in the single currency, which they may lend on to any borrower seeking euro financing. At the same time, however, the cost of borrowing on capital markets has been going down as national bond markets integrate into a single market. Therefore, Austrian banks are bound to face increased competition not only from foreign credit institutions but also from other financial intermediaries and alternative financing vehicles available in the capital market. From among the myriad of consequences of those developments, this study analyzes above all the impact on banks’ loan and deposit business.
The Possibilities and Limitations of Monetary Policy − Results of the OeNB’s 27th Economics Conference
Safeguarding price stability is indisputably a central task of monetary policy. Stable prices, in the long run, are most conducive to economic growth and sustainable employment. A study conducted by the Federal Reserve System, in which the negative correlation between inflation and productivity was proven empirically, corroborates this view.
The leverage of monetary policy in alleviating the unemployment problem in Europe, on the other hand, is limited. Monetary policy can only influence the cyclical component of unemployment and it must never turn against the primary task of safeguarding stability. Experience in several countries has shown that the high levels of unemployment in Europe need to be tackled through structural and supply-side policy measures. Undoubtedly, wage and income policies rank particularly high among the policy instrument used in EMU, in which real wage flexibility assumes special importance. Therefore, wage bargaining structures need to take the broader economic development into account. Experts agree that social partnership bodies on a European level and an institutionalized dialogue between political decisionmakers are pivotal prerequisites for such structures. Central banks have an increasingly important contribution to make, as financial markets are undergoing a process of integration. The central banks secure a stable monetary environment, they intervene as lenders of last resort in emergencies, they perform vital tasks in controlling and supervising financial market institutions and they can take measures to counter speculation in the markets. Central banks’ performance in fulfilling these tasks is substantially enhanced by close cooperation with international financial institutions such as the IMF.
The opinions expressed in the section “Studies” are those of the individual authors and may differ from the views of the Oesterreichische Nationalbank.