„Banking Supervision in Austria and the Measures for Financial Market Stability “ Russian Economic and Financial Forum Vienna, 1st December 2008 Helmut Ettl, Executive Director

2 Overview I. The FMA and the Banking Supervision in Austria II. The Measures for Financial Market Stability

3 Financial Market Authority – General Overview (1) Before the establishment of the FMA, the supervisory activity was performed by the Ministry of Finance (for insurance and banking) and by the Austrian Securities Agency (for securities) FMA operational as of April 1st, 2002 Integrated Supervisory Authority for the entire Austrian Financial Market Responsible for the supervision of: Credit Institutions Insurance Companies, Pension Funds Securities Firms, Issuers and the Vienna Stock Exchange

4 Financial Market Authority – General Overview (2) Established as an independent institution with own legal personality under public law Full independence, secured by legal provision in constitutional rank, including: Budgetary independence (own budget) Personal independence (own conditions for employment) Accountable to the Financial Committee of the National Assembly Total Staff: currently around 205 persons; 233 planned per end of 2008 Assisted by the Oesterreichische Nationalbank (Austrian National Bank) in the field of Banking Supervision (on site inspections and off- site analysis)

5 New Organisation of Banking Supervision FMA is responsible for the prudential supervision including Legal interpretation Supervisory proceedings (sanctions and approvals) Supervisory enquiries OeNB has to be mandated with all on-site inspections by the FMA OeNB is responsible for the off-site analyses Information exchange between the authorities Joint data base Regular meetings

6 As of 31 December 2007 the FMA supervises: 870 credit institutions 108 insurance companies 20 Pensionskassen (pension companies) 318 investment firms 4 financial conglomerates Investment funds ( 2351 national, 4891 foreign) Issuers (435) and the Vienna Stock Exchange Supervised entities

7 Important indicators of the Austrian Banking Market per Gross Domestic Product (GDP):€ 272,7 Billions Aggregated Total Assets: € 899,5 Billions Expected Profit on Ordinary Activities:€ 5,2 Billions Cost-Income Ratio: 61,95% Solvency Ratio: 17,33% RoE: 8,20% Subsidiaries in CESE: 73 Aggregated Total Assets CESE Subsidiaries: € 213,5 Billions

8 Overview I. The FMA and the Banking Supervision in Austria II. The Measures for Financial Market Stability

9 Background and Aims  Package is based on common Decisions by the European Heads of State and Government  Decisions by the Federal Government  Bills passed in Parliament in the most expedient way  Passed in Lower House on 20. October 2008  Passed in Upper House on 21. October 2008  Entered into force on 27. October 2008 (= immediately after publication in Official Gazette)  Aim: Restoring confidence and mitigate financial market turbulences impact on the real economy

10 Overview of the Measures  Comprehensive and Sustainable Package of Measures  for the strengthening of Banks (and Insurance Companies)  for the protection of Savers  5 main measures:  Provision of necessary Liquidity;  Equity Strengthening Measures  Safeguarding of individuals’ deposits  Enhanced possibility of FMA to require Capital Add-on  Prohibition of Speculative Short Selling

11 1. Provision of Necessary Liquidity Interbank Market Strengthening Act (Interbankmarktstärkungsgesetz)  Banks will establish a “Clearing house”  Banks (and Insurance Companies) will transact via this clearing house  Federal Government shall accept liability for this organisation  Clearing house will offer its services at market conditions (including a premium for the public guarantee) & on a non-discriminatory basis  Federal Government can also guarantee for issuing of securities by banks  Possibility to assume liability up to € 75 billion  Limited until 31. December 2009

12 2. Equity Strengthening Measures Financial Market Stability Act (Finanzmarktstabilitätsgesetz)  Enables the MoF to  inject equity capital by way of participation in Banks (and Insurance Companies)  guarantee for their debts  guarantee for debts towards banks  nationalise individual banks (as ultima ratio) by regulation against compensation  Stipulate details and conditions for these measures in a regulation  Privatisation of acquired participations  once measures have achieved their objective and  the capital market situation allows it  Maximum Amount of up to € 15 billion for these Public Measures

13 3. Safeguarding of Deposits Amendment of Banking Act  Deposits of physical persons guaranteed in full amount  to avoid bank run  to prevent competitive disadvantages (e.g. towards Germany)  Deposits of legal persons: situation unchanged  90% of the deposits amounting up to € 20,000.–  Ex post financing system as such remains unchanged  This amendment will take retro-active effect as of 1st October 2008  Spending of up to € 10 billion covered in Federal Budget for 2008  From 1st January 2010 deposits of physical persons guaranteed till 100,000.-

14 Further Provisions 4. Enhanced Possibility of Capital Add On Amendment of Banking Act  Clarification that Capital Add On is a preventive instrument  Can be used even if provisions of Pillar I are fulfilled  Abolition of previous quantitative limitation 5. Prohibition of Speculative Short Selling Amendment of Stock Exchange Act  In order to avoid major disadvantages for the financial market  The FMA is empowered to issue regulations prohibiting or  restricting short selling of certain financial instruments/securities  For a maximum time period for initially 3 months (can be prolonged)  Prohibition or restrictions and the time period must be stipulated for each security individually

15 Measures taken by FMA to restrict FX-lending Letter of 10. October 2008 to all Austrian banks:  The current situation on the financial markets requires increased dilligence.  Due to high FX- and interest rate volatilities this is particularly true for loans in FX and/or loans in combination with a repayment vehicle.  In the current situation the management of FX- and interest rate risk as required by the law encounters particular difficulties  FMA thus urgently recommends not to grant any further loans in FX to private households.  FMA and OeNB will put a specific focus on supervising such activities of banks.