Financial Stability Report 13

Downloads

• Financial Stability Report 13 (PDF, 1.8 MB) June 2007.

Studies and Analyses

• Framework Conditions for the Austrian Financial System Remain Favorable (PDF, 47 kB) Financial Stability Report 13 en Jun 15, 2007, 12:00:00 AM

• International Environment Continues to be Favorable in General, but Risk Factors Remain (PDF, 405 kB) Financial Stability Report 13 en Jun 15, 2007, 12:00:00 AM

• Stable Financial Position of the Real Economy Sectors (PDF, 189 kB) Financial Stability Report 13 en Jun 15, 2007, 12:00:00 AM

• Austrian Financial Intermediaries Benefit from the Benign Economic Climate (PDF, 353 kB) Financial Stability Report 13 en Jun 15, 2007, 12:00:00 AM

• Banking Efficiency and Foreign Ownership in Transition: Is There Evidence of a Cream-Skimming Effect? (PDF, 269 kB) Borovicka. Borovi?ka – Financial Stability Report 13 This paper revisits the issue of cost efficiency in the banking sector and the role of foreign ownership in European transition economies. The novelty of our approach is that we instrument for the decision of foreign investors to acquire domestic banks. This analysis allows us to evaluate the endogeneity bias that results from the so-called cream-skimming effect. Using a sample of 282 banks in 19 transition countries, we employ a two-stage instrumental variable approach. In the first stage, we estimate the probability of foreign acquisitions of domestic banks by implementing a panel probit model. In the second stage, the estimated propensity scores are used in the Battese and Coelli (1995) stochastic efficiency frontier specification. Although cost differences may also be caused by different product characteristics, our main finding is that the instrumental variable approach reveals that foreign ownership has a negative impact on cost efficiency. This observation indicates that in the transition countries studied the cream-skimming effect is significant, which implies that foreign investors tend to acquire the most cost efficient banks in the first place. en banking efficiency, stochastic efficiency frontier, foreign ownership, creamskimming effect C30, G21, G32 Jun 15, 2007, 12:00:00 AM

• The Concept of Capital within the Framework of Basel II (PDF, 204 kB) Pföstl. Pföstl – Financial Stability Report 13 The new Basel II Capital Accord has been one of the financial sector’s most fiercely discussed topics in the recent past. After many years’ debate, the regulations formally took effect on January 1, 2007, and the advanced measurement approaches are scheduled to become fully operational on January 1, 2008. The new regulations will cause a number of changes in the area of credit risk. The calculation of risk-weighted assets, and thus of regulatory capital, will henceforth be based on borrowers’ credit ratings to a much greater extent than according to the old regulations (Basel I). The concept of capital (i.e. the definition of own funds) itself will remain largely unchanged, although it was subject to repeated changes in recent decades. This paper examines the definition of capital in the new Austrian Banking Act and shows that the capital concept will need to be modified in the future. In addition, it defines regulatory capital in relation to other capital concepts, revealing inter alia that capital has a broader definition than balance sheet equity. An analysis of the capital adequacy of Austrian credit institutions demonstrates that their capital ratio clearly exceeds minimum capital requirements and that the composition of banks’ capital shows a favorably high share of core capital. en Basel II, credit institutions, banking supervision, capital, regulatory capital, own funds, capital ratio. G21, G28 Jun 15, 2007, 12:00:00 AM

• Demographic Change, Bank Strategy and Financial Stability (PDF, 185 kB) Schmitz. Schmitz – Financial Stability Report 13 The purpose of this article is to disseminate the main results of the program “Ageing and Its Implications for Banks and Bank Strategy” of the Oesterreichische Nationalbank’s (OeNB’s) Financial Markets Analysis and Surveillance Division and to draw conclusions about the implications of aging for financial stability. The first question that arises is whether demographic change is relevant for banks and financial stability at all. The paper answers this question in the affirmative and goes on to analyze the impact of demographic change on the environment in which banks operate, i.e. on economic growth, interest rates, and residential real estate markets, and on the level and composition of household demand for bank services and products. The article summarizes how banks might adapt their strategies in response to demographic change. Finally, it draws conclusions about the potential implications for financial stability. en banks, demography, ageing, financial stability. G21, J10 Jun 15, 2007, 12:00:00 AM

• Stress Testing the Exposure of Austrian Banks in Central and Eastern Europe (PDF, 311 kB) Boss, Krenn, Puhr, Schwaiger. Boss, Krenn, Puhr, Schwaiger – Financial Stability Report 13 Austrian banks are heavily engaged in Central and Eastern European (CEE) markets primarily by running local subsidiaries but also by extending cross-border loans. We give an account of the historical development and the status quo of these exposures and conduct a stress test for the Austrian banking system with respect to its credit exposure vis-à-vis the CEE region. Our test is based on an analysis of the current state of the local banking systems from a risk perspective, inter alia drawing on stress testing experiences gained by the national central banks and the International Monetary Fund. We use a stress scenario that (i) takes account of the differences in host country risks and (ii) represents a worst case that deliberately exceeds historical shocks. It turns out that, despite the dramatic worsening of the economic environment implied by the scenario, the Austrian banking system is not put at risk by the hypothesized crisis. The possible repercussions of a crisis in a single country via solvency problems of the Austrian parent institution turn out to be well limited. en financial stability, Central and Eastern Europe, stress t testing, credit risk. G15, G21, F23 Jun 15, 2007, 12:00:00 AM

• Annex of Tables (PDF, 209 kB) Financial Stability Report 13 en Jun 15, 2007, 12:00:00 AM