Sustainability of large Austrian banks’ business models

In March 2012, the Oesterreichische Nationalbank (OeNB) and the Austrian Financial Market Authority (FMA) published a supervisory guidance on strengthening the sustainability of the business models of large internationally active Austrian banks with a view to contributing to financial stability both in Austria and in the subsidiaries’ host countries. More specifically, the original set of measures aimed at

  • increasing these banks’ capital base in the medium and long term,
  • ensuring that banks have in place adequate recovery and resolution plans for potential crisis situations and
  • achieving a more balanced refinancing structure of exposed foreign subsidiaries.

The economic, legal and institutional environment has made considerable progress since the publication of the “Sustainability Package”:

  • The capital ratios of the addressed banks have increased substantially and they are now subject to the Supervisory Review and Evaluation Process (SREP) and macroprudential capital buffers that improve the risk bearing capacity of the Austrian banking system.
  • The guidance regarding recovery and resolution planning was also met. With the transposition of the European Bank Recovery and Resolution Directive (BRRD) in the Austrian Federal Act on the Recovery and Resolution of Banks (BaSAG), the establishment of the European Single Resolution Board (SRB) and the FMA as national resolution authority, new foundations were created to foster the resilience and the stability of the financial market.

Therefore, the first two objectives of the „Sustainability Package“ – i.e. a stronger capitalization of the addressed banks and the early drafting of recovery and resolution plans – were accomplished. These two pillars of the original guidance have been replaced by other measures and have consequently been withdrawn by the FMA and OeNB from the “Sustainability Package”.

Analyzing the local stable funding situation of foreign subsidiaries has evolved into a widely-recognized risk monitoring process to avoid excessive loan growth. Hence monitoring developments in loan and deposit volumes are of particular importance.