Recommendation FMSG/4/2019: guidance on applying the O-SII buffer

In its 21st meeting on September 9, 2019, 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 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 guidelines (EBA/GL/2014/10) 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 on 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 based on the criteria above during step one.

In 2018, the FMSB adopted a number of quantitative tools to underpin the expertise provided by the national supervisors. On the one hand, guaranteed deposits are used as an additional indicator, given that banks that hold a high share of guaranteed deposits, which would (over)burden the deposit guarantee system in an insurance event, are highly relevant to the entire system. On the other hand, banks that would not qualify as O-SIIs based on their EBA scores may still pose a threat to financial stability if one of the indicators applied in line with the EBA guideline shows that they are particularly highly exposed. In addition, banks may be systemically relevant not only at the consolidated but also at the individual-bank (unconsolidated) level.

The number of banks identified as O-SIIs at the consolidated and unconsolidated levels remains unchanged.

The table below lists the Austrian banks identified as O-SIIs and the buffer rates:

In line with Article 23c para 1 Austrian Banking Act, the FMSB recommends that the Financial Market Authority (FMA) prescribes O-SII buffer rates as specified in the table. The buffer levels for the banks identified as O-SIIs 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.