Fourth meeting of the Financial Market Stability Board
June 1, 2015In its fourth meeting on June 1, 2015, the Financial Market Stability Board (FMSB) decided upon the recommendation to enact macroprudential capital buffers of up to a total of 3% to strengthen the Austrian banking sector. These buffers are to be applied in addition to the applicable supervisory SREP Ratio1 (the SREP Ratio for some significant Austrian banks was set as 8% of CET1 during the Comprehensive Assessment).
Further items on the agenda of the Board's meeting covered reports about macroprudential measures taken in other EU Member States, indications of capital-related or systemic threats, measures taken by the Financial Market Authority (FMA) in accordance with the Bank Recovery and Resolution Act (BaSAG) in relation to HETA Asset Resolution AG as well as a discussion about the latest developments in the financial sector in Austria.
Recommendation for the Enactment of the Systemic Risk Buffer
The FMSB has made a recommendation to the FMA to enact a systemic risk buffer to protect against long-term non-cyclical systemic risks, resulting in a cumulative systemic risk buffer of up to 3% of risk-weighted assets for identified institutions. A buffer of 1% of risk-weighted assets should allow the "systemic vulnerability" of Austrian banks to be accounted for. A buffer of up to 2% of risk-weighted assets should in turn address "systemic cluster risk".
Both components combine to form a cumulative systemic risk buffer for identified institutions of up to 3% of risk-weighted assets.
The systemic risk buffer is due to enter into force on 1 July 2016.
Transitional period: For those banks, for which a systemic risk buffer of 3% has been prescribed, the systemic risk buffer is to be introduced gradually, in order to give the banks adequate time to be able to prepare in order to comply with the capital buffer requirement. Therefore, a systemic risk buffer of 2% shall apply for these banks during the transitional period from 1 July 2016 until 30 June 2017.
Recommendation for the Enactment of the Buffer for Systemically Important Institutions
The FMSB recommends that the FMA should enact a capital buffer in Austria of between 1% and 2% of risk-weighted assets on the basis of the European Banking Authority's (EBA) Guidelines on systemically important institutions. Various criteria - size, interconnectedness with the financial system, substitutability, complexity and cross-border activities - are taken into consideration in classifying the institutions. Banks are to be classified as systemically important institutions if the malfunctioning or failure of the institution can reasonably be expected to lead to the emergence of systemic risk. The additional capital requirements should serve to increase the resilience of the identified institutions, while also providing a stimulus for reducing their systemic relevance.
The higher of the respective systemic risk buffer and systemically important institution buffer shall be applied. In the currently prevailing case, this is the systemic risk buffer.
Recommendation for the Enactment of the Countercyclical Capital Buffer
The FMSB recommends the FMA to enact a 0% Countercyclical Capital Buffer for domestic credit institutions. This buffer is intended to protect the banking system against possible losses in conjunction with the emergence of a cyclical systemic risk and the associated adverse effects on the credit supply for the real economy.
The Credit-to-GDP gap, which is a significant indicator and which is currently negative, forms the basis for this decision. Consequently the benchmark for the Countercyclical Capital Buffer in accordance with the guidance of the Basel Committee on Banking Supervision (BCBS) is 0%. The FMSB will actively analyse the further development of cyclical risks and will issue a recommendation as required to increase the level of the buffer at a forthcoming meeting.
Information about the FMSB
The FMSB, which became operational in 2014, works towards strengthening financial stability. The members of the FMSB are representatives of the Federal Ministry of Finance, the Fiscal Advisory Council, the Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB). The FMSB may issue recommendations to the FMA and provide risk warnings.
1 SREP: Supervisory Review and Evaluation Process.
| systemic vulnerability | systemic cluster risk | Systemic Risk Buffer Level | |
|---|---|---|---|
| as a percentage of risk-weighted assets | |||
| Erste Group Bank | 1% | 2% | 3% |
| Raiffeisen Zentralbank | 1% | 2% | 3% |
| Raiffeisen Bank International | 1% | 2% | 3% |
| UniCredit Bank Austria | 1% | 2% | 3% |
| Raiffeisenlandesbank Oberösterreich | 1% | 0% | 1% |
| Raiffeisen−Holding Niederösterreich− Wien | 1% | 0% | 1% |
| BAWAG P.S.K. | 1% | 0% | 1% |
| Hypo Niederösterreich | 1% | 0% | 1% |
| Hypo Vorarlberg | 1% | 0% | 1% |
| Hypo Tirol | 1% | 0% | 1% |
| Landesbank Oberösterreich | 1% | 0% | 1% |
| Sberbank | 0% | 1% | 1% |
Transitional period: For those banks (EGB, RZB, RBI and UCBA), for which a systemic risk buffer of 3% has been prescribed, the systemic risk buffer is to be introduced gradually, in order to give the banks adequate time to be able to prepare in order to comply with the capital buffer requirement.
Therefore, a transitional period from 1 July 2016 until 30 June 2017 has been prescribed for these banks, during which a systemic risk buffer of 2% shall apply.
The higher of the respective systemic risk buffer and systemically important institution buffer shall be applied. In the currently prevailing case, this is the systemic risk buffer.