Recommendation FMSG/3/2018: guidance on applying the O-SII buffer
16th meeting, July 4, 2018In its 16th meeting on July 4, 2018, 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 anticipation of bailout in the event of a crisis can cause moral hazard. 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 Austrian Bank Recovery and Resolution Act (BaSAG)1 likewise contributes 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 a two-step process for identifying O-SIIs. First, the following indicators are used to categorize banks: (1) size, (2) importance for the economy of the Union or of the relevant Member State, (3) significance of cross-border activities, and (4) interconnectedness of the institution or group within the financial system (see also Article 131 CRD, Directive 2013/36/EU). Second, supervisory judgment comes into play: national supervisors draw on their expertise about the respective banking sector to ensure that all systemically important banks are identified as O-SIIs, even if a bank was not flagged as an O-SII during step 1 based on the criteria above. The step 2 assessment will identify especially banks holding a high share of guaranteed deposits as highly relevant for the entire system because the system would be (over)burdened. In addition, banks may be systemically relevant both at the consolidated and at the unconsolidated level. Following the enhancement of the O-SII definition over time, the O-SII list has been broadened to include Volksbanken Verbund and the Erste Bank der oesterreichischen Sparkassen (both hold high volumes of guaranteed deposits) as well as the incumbent O-SII banks at the unconsolidated level.
The FMSB’s evaluation has yielded the following O-SIIs and buffer rates:
| Score 2018 | January 1, 2019 |
January 1, 2020 |
||
|---|---|---|---|---|
| % of risk-weighted assets | ||||
| Consolidated (as previously) | ||||
| Erste Group Bank | 2,412 | 2.0 | 2.0 | |
| Raiffeisen Bank International | 1,740 | 2.0 | 2.0 | |
| UniCredit Bank Austria* | 1,181 | 1.0 | 1.0 | |
| Raiffeisenlandesbank Oberösterreich | 467 | 1.0 | 1.0 | |
| BAWAG P.S.K. | 579 | 1.0 | 1.0 | |
| Raiffeisen-Holding Niederösterreich-Wien | 310 | 1.0 | 1.0 | |
| consolidated (new) | ||||
| Volksbanken Verbund | 206 | 0.5 | 1.0 | |
| unconsolidated (new) | ||||
| Erste Group Bank | 1,348 | 2.0 | 2.0 | |
| Raiffeisen Bank International | 1,018 | 2.0 | 2.0 | |
| UniCredit Bank Austria* | 1,181 | 1.0 | 1.0 | |
| Raiffeisenlandesbank Oberösterreich | 426 | 1.0 | 1.0 | |
| BAWAG P.S.K. | 473 | 1.0 | 1.0 | |
| Raiffeisenlandesbank Niederösterreich-Wien | 299 | 1.0 | 1.0 | |
| Erste Bank der oesterreichischen Sparkassen | 188 | 0.5 | 1.0 | |
| * UCBA’s systemic relevance would call for an O-SII buffer of 2%. The actual buffer is limited to 1% because UniCredit must already observe a buffer of 1% as set by the Italian supervisory authority for global systemically important banks (G-SIBs). | ||||
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 buffer levels for the O-SIIS identified in 2017 remain unchanged. Where both the systemic risk buffer and the O-SII buffer might be applicable, the higher of the two rates applies.
1 The BaSAG has implemented the EU Bank Recovery and Resolution Directive (BRRD) in Austria.