Second meeting of the Financial Market Stability Board

In its second meeting, the Financial Market Stability Board (FMSB) discussed the systemic risks affecting the Austrian banking industry; preparations for activating countercyclical capital buffers and buffers for systemically important financial institutions; the repercussions of the Russia-Ukraine crisis; and the results of the comprehensive assessment of significant banks carried out by the European Central Bank (ECB).

Preparations for systemic risk buffers, buffers for systemically important banks and countercyclical capital buffers

In Austria, supervisors have been able to use macroprudential tools since early 2014. Based on current legislation, they can require banks to maintain systemic risk buffers, which have been designed to address structural, noncyclical risks in the banking system. In other words, systemic risk buffers serve to enhance the resilience of the banking system to shocks that may arise from structural systemic weaknesses. Cases in point are structural weaknesses of the economy, the size of the banking sector, structural shocks resulting from financial innovations, or changes to the institutional and legal framework.

Starting in 2016, the Financial Market Authority (FMA) may also apply countercyclical capital buffers and impose buffer requirements specific to systemic institutions, following corresponding recommendations of the FMSB. In its meeting on November 10, 2014, the FMSB discussed the status of implementing macroprudential tools in Austria, based on the recommendations issued by the European Systemic Risk Board (ESRB) and the guidelines published by the European Banking Authority (EBA).

Capital buffers for other (i.e. other than global) systemically important institutions (″O-SII buffers″) will serve to address risks that arise from systemically relevant banks and affect other banks, the real economy or public households. Banks may be deemed to be of systemic importance on account of their size, their importance for the economy, the significance of their cross-border activities, or their interconnectedness with the financial system. O-SII buffers are meant to cushion potential adverse effects of potential institution-specific problems and to reduce incentive distortions that result from systemic institutions being more likely to receive taxpayer support than other institutions.

Countercyclical capital buffers, finally, serve to address cyclical risks which may arise from excessive lending. If deemed necessary, these buffers may be rolled out to the entire banking system. Countercyclical buffers are meant to protect the banking system against losses that may arise from heightened risks created by excessive credit growth. The idea is to build up capital buffers in good times, in which systemic risks increase, and to draw down these buffers when losses are incurred, or to reduce the buffers as risks decrease.

Discussion of the effects of the Russia-Ukraine crisis on Austria

The FMSB also discussed the activities of Austrian banks in Russia and Ukraine, the restrictions imposed by the EU on transactions with Russia, and the economic impact of those measures on Russia and Austria. So far, the sanctions imposed on Russia are deemed to have a limited direct impact on Austria′s financial industry and economy.

Discussion of the outcome of the comprehensive assessment carried out by the ECB

The FMSB welcomes the ECB′s new role as a single supervisor for banks based in the euro area. The majority of domestic banks did well in the comprehensive balance sheet assessment carried out by the ECB for significant banks. At the same time, banks will need to follow up on the measures taken so far to strengthen capital positions and improve profitability.

Information on the FMSB

The FMSB was established to strengthen cooperation in the field of macroprudential supervision and to promote financial stability. It convened for its inaugural meeting on September 8, 2014. The members of the FMSB are representatives of the Federal Ministry of Finance, the Fiscal Advisory Council, the FMA and the OeNB. The FMSB meets four times a year. The website of the FMSB (http://www.fmsg.at/en) will go live in early 2015.