26th meeting of the Financial Market Stability Board
In its 26th meeting on December 15, 2020, the Financial Market Stability Board (FMSB) discussed the effects of the COVID-19 pandemic and their implications for the financial system. Moreover, the FMSB evaluated progress in achieving the intermediate macroprudential objectives against the background of the COVID-19 pandemic. An additional topic under discussion was the availability of data on commercial real estate. In conclusion, the FMSB recommended leaving the countercyclical capital buffer (CCyB) rate unchanged at 0% of risk-weighted assets.
FMSB evaluates progress in achieving intermediate macroprudential objectives
In its annual evaluation of the six intermediate objectives laid down in the macroprudential policy strategy for Austria, the FMSB concluded that the measures taken in 2020 were adequate for achieving these objectives also in view of the COVID-19 pandemic.
- With regard to the intermediate objective of mitigating excessive credit growth, the FMSB found credit growth not to be excessive, which is why the CCyB rate was left unchanged at 0%. However, growth of real estate lending to households continued to be persistently high until the end of the third quarter of 2020 against the backdrop of a continued rise in residential real estate prices. The FMSB therefore considers the sustainability of real estate lending standards essential for maintaining financial stability in Austria.
- With regard to the intermediate objective of mitigating excessive liquidity risk, the FMSB found that Austrian financial institutions have benefited from the favorable terms of issue, both for debt capital and equity capital, that were created by Eurosystem monetary policy operations. In this favorable environment, the FMSB deems systemic liquidity risk to be low. Some refinancing risks might materialize, however, once the monetary policy operations that especially address the COVID-19 pandemic are discontinued.
- The intermediate objectives of limiting exposure concentrations and the systemic impact of misaligned incentives are addressed by the systemic risk buffer (SyRB) and the other systemically important institution (O-SII) buffer. Regarding these two buffers, the FMSB gave a new recommendation in its 24th meeting of June 15, 2020, taking into consideration the high uncertainty regarding the further progress of the COVID-19 pandemic in their calibration. After all, capital buffers are essential to ensure that Austrian banks have a strong capital base enabling them to bear the follow-up costs of the COVID-19 pandemic. To maintain an adequate capital base, Austrian banks will also need to exercise caution, in line with international recommendations, in distributing net profits until uncertainties surrounding the COVID-19 pandemic have subsided. The FMSB will regularly evaluate developments in the conditions pertaining to the two capital buffers. Even though the FMSB’s recommendation of June 2020 took regard of the possibility of a delayed implementation of the revised EU Capital Requirements Directive (CRD V), swift implementation of CRD V into Austrian law would nonetheless be important.
- The FMSB considers the funding models of Austrian deposit guarantee schemes – a key infrastructure according to the fifth intermediate objective – to have reduced systemic risk. The probability of contagion for other banks by a failing entity and thus the necessity of support from the tax payer have been reduced. Two deposit insurance events in 2020 could be covered with the deposit guarantee fund of Einlagensicherung AUSTRIA Ges.m.b.H.
- Regarding the intermediate objective of reducing information deficits, the FMSB found that major progress was made by introducing a reporting framework for the collection of data on private housing loans. In particular, this step will improve the monitoring of lending standards in this segment. At the same time, recent payment moratoria and government guarantees have increased the need for transparency in banks’ balance sheets so that adequate risk assessment by banks, investors and banking supervision can be guaranteed. The FMSB also identified further need for action in the segment of commercial real estate.
Availability of data on commercial real estate
In line with the International Monetary Fund (IMF), the Financial Stability Board (FSB) and the European Systemic Risk Board (ESRB), the FMSB considers a better availability of data on commercial real estate essential for systemic risk analysis. The FMSB therefore requests the Oesterreichische Nationalbank (OenB) to legally implement, under the Nationalbank Act, the reporting of information required to calculate the price index, rental index and rental yield index for commercial real estate according to the corresponding ESRB recommendation.
FMSB recommendation on applying the CCyB
Growth of loans to Austrian borrowers is still not considered excessive. The gap between the credit-to-GDP ratio and its trend turned positive in the second quarter of 2020, but this was attributable to a strong decline in GDP growth rather than to excessive credit growth. Therefore, the FMSB, taking also into account the international reactions to the challenges posed by the COVID-19 crisis, decided to recommend that the FMA apply the CCyB at its current level of 0% of risk-weighted assets also from April 1, 2020 (Recommendation FMSG/5/2020).
Information on the FMSB
The FMSB, which became operational in 2014, works toward strengthening financial stability. Its members are representatives of the Austrian Federal Ministry of Finance, the Fiscal Advisory Council, the Financial Market Authority and the Oesterreichische Nationalbank. In particular, the FMSB may issue recommendations to the Financial Market Authority and provide risk warnings.