Measures for Stabilizing the Financial System
The Vienna Initiative (or European Bank Coordination Initiative) is an informal forum. It brings together the major banks of Central Eastern and South Eastern Europe (CESEE), home and host country authorities, key international financial institutions – the International Monetary Fund (IMF), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank, as well as the the World Bank Group – and the European Commission at one table.
Launched by the Austrian Ministry of Finance, the EBRD and the IMF at the height of the financial crisis in late 2008 / beginning 2009, the Vienna Initiative provided the missing setting were the relevant stake-holders could meet in order to initiate a joint crisis response.
The Vienna Initiative proofed to be a successful vehicle for public-private sector coordination. In the second half of 2009, the Initiative contributed to sharpening the perception for the increased macro-financial risks in the aftermath of the Lehman crisis, it helped build mutual trust between the international banks, home and host country authorities and IFIs, and it contributed to the stabilization and recovery of certain CESEE countries and the region as a whole.
Subsequently, the Vienna Initiative shifted its focus to horizontal post-crisis issues. In a full forum meeting in March 2010, two working groups were launched: one on issues relating to unhedged foreign currency exposures, the other one on the role of commercial banks in the absorption of EU funds. The results of this work were positively assessed in another full forum meeting in March 2011, and it was decided that the working group format would be retained. In this context, two new topics were identified: the implications of selected issues of Basel III and the challenges of managing non-performing loans.
The next meeting of the full forum is scheduled for 2012 in Vienna. Bilateral meetings are also taking place on a regular basis.
On the EU level, there is currently no framework for the management of a crisis in the banking sector. The financial crisis has clearly shown that the lack of such a regime hampers our ability to deal with problems in cross-border banks. As a consequence, a number of governments had to take emergency action and support banks in order to stabilise the financial markets.
The European Commission is currently preparing a new framework for crisis management that will address the lessons learned during the financial crisis. As a first step, the Commission will adopt a legislative proposal for a harmonised EU regime for crisis prevention and bank recovery and resolution in 2011. This will comprise a common set of resolution tools and reinforce the cooperation between national authorities. Exit should become a credible option for every bank, regardless of its size and inter-connectedness.
At the national level, EU Member States are requested to establish Cross Border Stability Groups as a platform for the
- exchange of relevant information on crisis management
- discussion of systemic relevance
- discussion of stress scenarios
- preparation and conduct of crisis simulation exercises
- development of a joint crisis communication strategy.
Austria is currently preparing the establishment of a Cross Border Stability group for the four big Austrian cross-border banks operating in Central Eastern and South Eastern Europe.
Based on several EU decisions to stabilize the financial markets, Austria has adopted a comprehensive and sustainable package of measures for the protection of retail depositors and the strengthening of banks and insurance companies. The package entered into force in October 2008.
The central aspects of the Austrian stability package are:
Stimulation of the interbank-market
The objective of the Interbankmarktstärkungsgesetz (Interbank Market Support Act – IBSG) was to reinvigorate the interbank market. To this end a number of Austrian banks established a clearing bank, for which the Austrian government accepted liabilities. The clearing bank acquired funds on the interbank market and forwarded them to other banks. Furthermore, credit institutions received public guarantees for bond issues.
Due to the stability of the Austrian financial market and in line with EU decisions, the IBSG was allowed to expire in December 2010. Since then the clearing bank has neither executed new transactions, nor has it provided new public guarantees for bond issues.
Equity-strengthening measures for individual banks
Whilst the objective of the IBSG was to restore the functioning of the interbank market, the Finanzmarktstabilitätsgesetz (Financial Market Stability Act – FinStaG ) focuses on individual financial institutions. The FinStaG enables the Austrian Minister of Finance (in accordance with the Austrian Chancellor) to take measures for the recapitalization of credit institutions and insurance companies. The measures may encompass public liabilities for the obligations of / to the affected legal entity as well as the provision of capital, especially participation capital. Another form of permitted recapitalization is the purchase of shares from banks / insurance companies by the Austrian government. An amount of € 15 bn is available for these measures.
A regulation enacted by the Minister of Finance in agreement with the Chancellor determines the specific requirements and obligations for the measures taken pursuant to the IBSG and the FinStaG. Public participations in the financial sector are administered by the Finanzmarktbeteiligung AG (Administrator of Public Participations in the Financial Sector – FIMBAG).