Session III: The role of the Austrian Central Bank in the ongoing financial market turmoil
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Transcript of Session III: The role of the Austrian Central Bank in the ongoing financial market turmoil
Session III:The role of the Austrian Central Bank in the ongoing financial market turmoil
Russian Economic and Financial Forum in Austria Vienna, 30 November 2008
Michael WürzHead, Financial Markets Analysis and Surveillance DivisionOesterreichische Nationalbank
www.oenb.at
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Financial market tensions emerged from the West
Source: OeNB, Bloomberg.
Loss in confidence resulting from US subprime-crisis
- Markets for structured products not/only to a limited extent functioning
- Significant write-downs by large international banks
- Increase in interbank interest rates
- Liquidity provision by central banks
- High stock price volatility
0
50
100
150
200
250
300
350
07.0
709
.07
11.0
701
.08
03.0
805
.08
07.0
809
.08
11.0
8
USD EUR
Interbank market - 3M OIS Spreads
in basis points
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Latest wave hit the Austrian banks too
First waves50
60
70
80
90
100
110
07/0
708
/07
09/0
710
/07
11/0
712
/07
01/0
802
/0803
/08
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805
/08
06/0
8
DJ EURO STOXX Financial Services Erste Group Bank Raiffeisen International Bank Holding
20
30
40
50
60
70
80
90
100
110
120
07/0
808
/08
09/0
810
/08
11/0
8
Stock prices of Austrian banks1.7.2007 = 100 1.7.2008 = 100
Quelle: Bloomberg.
First waves Latest wave
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Indirect effects of turmoil affect operating profits and risk provisions
0.33 -0.33
5.47 6.09
2.052.59
3.533.21
1.171.15
-2
0
2
4
6
8
10
12
14
2007Q03 2008Q03
Other operating income
Net fees and commissions income
Securities and investment earnings
Net interest income
Trading income
in bn EUR
Source: OeNB.
-1,2%
-9,1%
+26,8%
+11,4%
-198,3%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2005Q42006Q22006Q42007Q22007Q42008Q2
-300%
-200%
-100%
0%
100%
200%
300%
Operating profit (cons.)Operating profit (uncons.)
Risk costs (uncons.) (right axis)
Growth of Operating Profit and Risk Costs (yoy)
Operating Income (unconsolidated): +1.4%
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Liquidity conditions are challenging and closely monitored
Funding markets dried up in autumn 2008, Austrian banks were also affected Tight liquidity conditions CHF and USD financing
Non-Euro liquidity situation has improved
General situation remains challenging
OeNB is closely monitoring the situation Introduction of new weekly liquidity report
The 24 largest banks report in- and outflows plus counterbalancing capacity
Time horizons: up to 1 week, 1 month, 3 months and 6 months
Currencies: CHF, EUR, GBP, JPY, USD and an aggregate of other FX
Additional regular information exchange with banks reporting liquidity mismatches
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High deposit growth in Austria and Central, Eastern and South-Eastern Europe (CESEE)
0%
3%
6%
9%
12%
15%
2005
Q02
2005
Q04
2006
Q02
2006
Q04
2007
Q02
2007
Q04
2008
Q020%
10%
20%
30%
40%
50%
2005
Q02
2005
Q04
2006
Q02
2006
Q04
2007
Q02
2007
Q04
2008
Q02
Growth Rate of Deposits of Austrian Subsidiaries in CESEE (yoy)
Growth Rate of Deposits in Austria (yoy)
Source: OeNB, unconsolidated figures.Due to changes in reporting requirements the comparability of CESEE growth rates before 2008 with more recent values is limited.
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CESEE exposure of Austrian banks focussed on New Member States (NMS) in the EU
AT banks are ….
… significant players in CESEE
… diversified across the region but
exposure to NMS dominates
Growth is redirected and partly cooling off
CESEE segment is highly profitable
Major banks depend strongly on CESEE0
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90
RZB Erste Bank Bank Austria VBAG
Share of CESEE Segment in Consolidated Pretax Profit
Q2 2008
Q3 2008
Q3 2008
Q2 2008
Source: quarterly consolidated reports.
Source: BIS, Q2 2008.CIS13%
SEE14%
NMS-200717%
NMS-200456%
CESEE Exposure
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Business model of Austrian banks in CESEE faces short runchallenge
Business model of Austrian banks in CESEE is in principle fit for future
–Retail banking based on a strong deposit base will emerge as a winner of the financial turmoil
Cut and run – no option for Austrian banks–Costs would outweigh benefits by far
Turmoil in CESEE represents a short run jeopardy for the long and medium term growth potential
–CESEE is an important contributor to EU-15 growth rates
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Austria‘s comprehensive financial stability package
• Strengthening Banks‘ Confidence– Interbank Market Strengthening Act (up to 75 bn EUR):
- Clearing house- Federal guarantee for securities issued by banks
• Strengthening Banks‘ Capitalisation– Financial Market Stability Act (up to 15 bn EUR):
- „Recapitalisation measures“
• Strengthening Depositors‘ Confidence– Deposit insurance
- physical persons: until end-2009 unlimited amount; afterwards up to 100,000 EUR- legal persons: 90% of up to 20,000 EUR.
• Further measures: - Amendment in the Banking Act: „Capital Add-On“- Prohibition of Speculative short selling
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OeNB‘s role in banking supervision and financial stability
1. Banking Supervision: - 2 institutions (FMA and OeNB), but 1 process & joint responsibility
- OeNB: fact finding, including risk assessment
On-site
inspectionsOff-site analysis
ReportingAuthority function
OLD FMA/OeNB FMA/OeNB OeNB FMA
NEW OeNB OeNB OeNB FMA
2. Financial Stability: - Comprehensive and recently extended mandate, based on the EC-Treaty
and the National Bank Act: Monitoring of all circumstances that are of relevance for the safeguarding of financial stability in Austria
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Thank you for your attention!
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Austrian Clearingbank/Oesterreichische Clearingbank AG (OeCAG)
• Legal basis is a temporary law to stabilise the Austrian interbank market– Austrian government backs a clearing house (OeCAG) to unfreeze
interbank lending and debt instrument issuances of financial institutions
– Guarantees amount up to 75 bn EUR– Expiration date of law is Dec. 31st, 2009
• Austrian Clearingbank (OeCAG):– Founded on Nov. 14th, 2008 by major banks; Initial own funds: 180 mn
EUR – Business activities are conducted by OeKB and guaranteed by the
Austrian government – Participants are banks and insurance companies– So far three auctions have taken place
• Allocated volume in sum: 804.6 mn EUR; decreasing rates and increasing volume
– Intention to raise additional funds through commercial paper auctions
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OeNB‘s financial stability mandate
Financial stability mandate inherent central banking task
in Austria: comprehensive monitoring responsibility explicitly stipulated by the National Bank Act- combined with the obligation to report observations and findings of
fundamental nature or particular importance to the MoF and the FMA
Recent extension of data availability allows for integrated financial stability analyses
Structured processes for core stability issues:
- CESEE Risk Assessment
- Risk Transfer
- Extension of stress testing
- Liquidity
Links/feedback-loops to banking supervision and vice versa!
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Specific focus on CESEE activities in banking supervision and financial stability
Specific CESEE-meetings with the relevant Austrian banks
Further extension of cross-border supervisory cooperation
- Cooperation in the framework of so-called “colleges”
- Joint/simultaneous on-site inspections
- Joint seminars, conferences
- ad-hoc meetings, cooperation in EU fora etc
„CESEE Risk Assessment“ as core issue within the extended stability mandate of the OeNB
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Cross-border banking supervision in the EU
Consensus: cross-border banking groups require responses in the supervisory process, but: Quo vadis?
OeNB‘s perspective:
- “Lead Supervisor” is no option
- decentralized European System of Banking Supervisors might emerge in the long-term (masterplan with milestones and timeline needed)
- For the time being: evolutionary development of the model “national supervisory authorities & CEBS”
→ Colleges (delegation of tasks ok, but no change in home/host responsibilities)
→ via CEBS: European supervisory culture
→ ensuring that all banks are subject to the same (high) standards