„Banking Supervision in Austria and the Measures for Financial Market Stability “

Russian Economic and Financial Forum

Vienna, 1st December 2008

Helmut Ettl, Executive Director

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Overview

I. The FMA and the Banking Supervision in Austria

II. The Measures for Financial Market Stability

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Financial Market Authority – General Overview (1)

Before the establishment of the FMA, the supervisory activity was performed

by the Ministry of Finance (for insurance and banking) and by the Austrian

Securities Agency (for securities)

FMA operational as of April 1st, 2002

Integrated Supervisory Authority for the entire Austrian Financial Market

Responsible for the supervision of:

Credit Institutions

Insurance Companies, Pension Funds

Securities Firms, Issuers and the Vienna Stock Exchange

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Financial Market Authority – General Overview (2)

Established as an independent institution with own legal personality under public law

Full independence, secured by legal provision in constitutional rank, including:

Budgetary independence (own budget)Personal independence (own conditions for employment)Accountable to the Financial Committee of the National Assembly

Total Staff: currently around 205 persons; 233 planned per end of 2008

Assisted by the Oesterreichische Nationalbank (Austrian National Bank) in the field of Banking Supervision (on site inspections and off-site analysis)

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New Organisation of Banking Supervision

FMA is responsible for the prudential supervision including

Legal interpretation

Supervisory proceedings (sanctions and approvals)

Supervisory enquiries

OeNB has to be mandated with all on-site inspections by the FMA

OeNB is responsible for the off-site analyses

Information exchange between the authorities

Joint data base

Regular meetings

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As of 31 December 2007 the FMA supervises:

870 credit institutions

108 insurance companies

20 Pensionskassen (pension companies)

318 investment firms

4 financial conglomerates

Investment funds ( 2351 national, 4891 foreign)

Issuers (435) and the Vienna Stock Exchange

Supervised entities

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Important indicators of the Austrian Banking Market per 31.12.2007

Gross Domestic Product (GDP): € 272,7 Billions

Aggregated Total Assets: € 899,5 Billions

Expected Profit on Ordinary Activities: € 5,2 Billions

Cost-Income Ratio: 61,95%

Solvency Ratio: 17,33%

RoE: 8,20%

Subsidiaries in CESE: 73

Aggregated Total Assets CESE

Subsidiaries: € 213,5 Billions

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Overview

I. The FMA and the Banking Supervision in Austria

II. The Measures for Financial Market Stability

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Background and Aims

Package is based on common Decisions by the European Heads of State and Government

Decisions by the Federal Government

Bills passed in Parliament in the most expedient way Passed in Lower House on 20. October 2008 Passed in Upper House on 21. October 2008

Entered into force on 27. October 2008 (= immediately after publication in Official Gazette)

Aim: Restoring confidence and mitigate financial market turbulences impact on the real economy

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Overview of the Measures

Comprehensive and Sustainable Package of Measures for the strengthening of Banks (and Insurance Companies)

for the protection of Savers

5 main measures: Provision of necessary Liquidity;

Equity Strengthening Measures

Safeguarding of individuals’ deposits

Enhanced possibility of FMA to require Capital Add-on

Prohibition of Speculative Short Selling

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1. Provision of Necessary Liquidity

Interbank Market Strengthening Act (Interbankmarktstärkungsgesetz)

Banks will establish a “Clearing house”

Banks (and Insurance Companies) will transact via this clearing

house

Federal Government shall accept liability for this organisation

Clearing house will offer its services at market conditions (including a

premium for the public guarantee) & on a non-discriminatory basis

Federal Government can also guarantee for issuing of securities by

banks

Possibility to assume liability up to € 75 billion

Limited until 31. December 2009

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2. Equity Strengthening Measures

Financial Market Stability Act (Finanzmarktstabilitätsgesetz) Enables the MoF to

inject equity capital by way of participation in Banks (and Insurance Companies)

guarantee for their debts guarantee for debts towards banks nationalise individual banks (as ultima ratio) by regulation against

compensation Stipulate details and conditions for these measures in a regulation

Privatisation of acquired participations once measures have achieved their objective and the capital market situation allows it

Maximum Amount of up to € 15 billion for these Public Measures

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3. Safeguarding of Deposits

Amendment of Banking Act

Deposits of physical persons guaranteed in full amount to avoid bank run to prevent competitive disadvantages (e.g. towards Germany)

Deposits of legal persons: situation unchanged 90% of the deposits amounting up to € 20,000.–

Ex post financing system as such remains unchanged

This amendment will take retro-active effect as of 1st October 2008

Spending of up to € 10 billion covered in Federal Budget for 2008

From 1st January 2010 deposits of physical persons guaranteed till 100,000.-

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Further Provisions

4. Enhanced Possibility of Capital Add OnAmendment of Banking Act Clarification that Capital Add On is a preventive instrument Can be used even if provisions of Pillar I are fulfilled Abolition of previous quantitative limitation

5. Prohibition of Speculative Short Selling

Amendment of Stock Exchange Act In order to avoid major disadvantages for the financial market The FMA is empowered to issue regulations prohibiting or restricting short selling of certain financial instruments/securities For a maximum time period for initially 3 months (can be prolonged) Prohibition or restrictions and the time period must be stipulated for each

security individually

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Measures taken by FMA to restrict FX-lending

Letter of 10. October 2008 to all Austrian banks:

The current situation on the financial markets requires increased

dilligence.

Due to high FX- and interest rate volatilities this is particularly true for

loans in FX and/or loans in combination with a repayment vehicle.

In the current situation the management of FX- and interest rate risk as

required by the law encounters particular difficulties

FMA thus urgently recommends not to grant any further loans in FX to

private households.

FMA and OeNB will put a specific focus on supervising such activities of

banks.