Recommendation for the application of the O-SII buffer (FMSG/5/2017)
14th meeting, November 29, 2017In its 14th meeting on November 29, 2017, the Financial Market Stability Board (FMSB) evaluated the other systemically important institution (O-SII) buffer.
Other systemically important institutions can create risks to a country’s financial system. Their systemic relevance and expectations of possible government aid measures in the event of a crisis can cause moral hazard and reduce O-SIIs’ refinancing costs. The O-SII buffer reduces the likelihood of bank failure and therefore (partly) offsets the higher social costs that could result from a malfunctioning or failure of a credit institution (Article 23c Austrian Banking Act). The adoption of the Austrian Bank Recovery and Resolution Act (BaSAG), which implements the EU Bank Recovery and Resolution Directive (BRRD) at national level, has also contributed to addressing these risks, as it allows banks to exit the market at lower social cost.
The EBA has published guidelines (EBA/GL/2014/10) which establish ten indicators that must be taken into consideration when identifying O-SIIs. These indicators are based on the four categories proposed by Article 131 Capital Requirements Directive (Directive 2013/36/EU) and the Basel framework (Basel Committee on Banking Supervision):
- size,
- importance for the economy of the Union or of the relevant Member State,
- significance of cross-border activities,
- interconnectedness of the institution or group with the financial system.
The EBA guidelines have established a scoring process for assessing the systemic importance of banks. The total score for the banking system of a Member State amounts to 10,000 points. The FMSB’s evaluation of Austrian institutions has yielded the following scores and buffer rates:
| Other systemically important institution (O-SII) buffer | |||||
|---|---|---|---|---|---|
| 2017 score | Buffer rate | ||||
| January 1, 2018 | January 1, 2019 | ||||
| % of risk-weighted assets | |||||
| Erste Group Bank | 2,231 | 1 | 2 | ||
| Raiffeisen Bank International | 1,795 | 1 | 2 | ||
| UniCredit Bank Austria* | 1,223 | 1 | 2 | ||
| Raiffeisenlandesbank Oberösterreich | 466 | 0.5 | 1 | ||
| BAWAG P.S.K. | 421 | 0.5 | 1 | ||
| Raiffeisen-Holding Niederösterreich-Wien | 325 | 0.5 | 1 | ||
|
* As the Italian supervisory authority has prescribed a global systemically important bank (G-SIB) buffer of 1% that must currently be observed by UniCredit, the O-SII buffer applicable to UniCredit Bank Austria is limited to 1%. |
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In line with Article 23c para. 1 Austrian Banking Act, the FMSB recommends that the Financial Market Authority (FMA) prescribe O-SII buffer rates as specified in the table. The recommended buffer rates are unchanged against those proposed in recommendation FMSG/2/2015. Where both the systemic risk buffer and the O-SII buffer might be applicable, the higher of the two rates applies (FMSG/4/2017).