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Michael Hysek Managing Director of Banking Supervision Financial Market Authority BSCEE Conference Macedonia, 15.-17. June 2010 Lessons Learned and Measures.

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Presentation on theme: "Michael Hysek Managing Director of Banking Supervision Financial Market Authority BSCEE Conference Macedonia, 15.-17. June 2010 Lessons Learned and Measures."— Presentation transcript:

1 Michael Hysek Managing Director of Banking Supervision Financial Market Authority BSCEE Conference Macedonia, June 2010 Lessons Learned and Measures Aimed at Strengthening the Resilience of the Banking Sector The Austrian View

2 Michael Hysek, FMA Macedonia, June Agenda 1.The Austrian Banking Sector 2.Austrian Exposure in CESEE and CIS 3.Highlights of the Crisis 4.The Way Forward 5.Conclusio

3 Michael Hysek, FMA 3 (1) Austrian Banking: Facts & Figures (as of 31 Dec 2009 in EUR) yoy-change Nom. GDP Austria276.9 bn-1.8 % Aggregated Total Assets bn-3.3 % Expected Net Income247.8 mio-87.1 % Risk provisions8.3 bn-19.5 % Cost-Income Ratio62.0 %+6.5 pb Solvency Ratio18.7 %+1.5 pb Number of Subsidiaries in CESEE67 Aggregated Total Assets CESEE Subsidiaries254.4 bn-4.9 % Macedonia, June 2010

4 Michael Hysek, FMA Macedonia, June (1) Diversity of Austrian Banks (as of 31 Dec 2009) Number of Credit Institutions:856 Savings Banks 55 Raiffeisen Credit Cooperatives 545 Volksbank Credit Cooperatives 68 Joint Stock Banks and Private Banks 51 State Mortgage Banks 11 Building and Loan Associations 4 Special Purpose Banks 92 Member States Branches 30

5 Michael Hysek, FMA Macedonia, June (1) Austrian Top 10 Banking Groups (consolidated) As of 31 Dec 2009 Total Assets in Billion Euro Erste Group Bank AG Unicredit Bank Austria AG Raiffeisen Zentralbank Österreich AG Österreichische Volksbanken AG BAWAG P.S.K. Bank für Arbeit und Wirtschaft AG Hypo Alpe-Adria Bank International AG Raiffeisenlandesbank Oberösterreich AG Österreichische Kontrollbank AG Raiffeisen-Holding NÖ-Wien reg.Gen.m.b.H. Oberbank AG

6 Michael Hysek, FMA 6 (2) Austrian Exposure in CESEE and CIS (as of 31 Dec 2009) Macedonia, June 2010

7 Michael Hysek, FMA Macedonia, June (3) Highlights of the Crisis 3.1 Austrian Bank Stabilisation Package 3.2 Crisis Activities of the FMA 3.3 Nationalisation of HGAA 3.4 The Vienna Initiative

8 Michael Hysek, FMA 8 (3.1) Austrian Bank Stabilisation Package Strengthening the interbank market: provide liquidity to the financial sector (Interbank Market Revival Act; EUR 65 bn) Strengthen equity capital of banks – Recapitalisation Package (Financial Market Stability Act; EUR 15 bn) Deposit insurance (EUR 10 bn): Securing deposits of natural persons Additional measures – Enhancing supervisory efficiency, temporary restrictions on short selling Macedonia, June 2010

9 Michael Hysek, FMA 9 (3.2) Crisis Activities of the FMA Permanent contacts with management of big banks Close monitoring of key ratios Regular liquidity reports Involvement in the stabilisation package Daily telephone conferences with the Central Bank Ad hoc-surveys Targeted on site-inspections Supervisory Colleges / Ad hoc-Meetings Information exchange with other supervisors Macedonia, June 2010

10 Michael Hysek, FMA 10 (3.3) Nationalisation of HGAA 10/11/2009: Ad hoc announcement: projected loss for 2009 significantly above 1 billion HGAA publicly expressed need for recapitalization until end of 2009 Nov/Dec 2009 Alert phase within liquidity management 04/12/2009: Downgrading by Moodys: BFSR from E+ to E; Long Term from Baa1 to Baa2 14/12/2009: Agreement on takeover of Hypo Group Alpe-Adria by the Austrian government (closing on 30/12/2009) Commitment of Republic of Austria and BayernLB for further capital injections to ensure compliance with minimum capital requirements Macedonia, June 2010

11 Michael Hysek, FMA 11 (3.3) Nationalisation of HGAA - Challenges Influence of medial reporting on withdrawal of funds Contagion effects in the case of insolvency Guarantee by province of Carinthia appr. 18 billion Supervisory Communication (domestic and cross-border) Taking the appropriate supervisory measures at the right time Macedonia, June 2010

12 Michael Hysek, FMA 12 (3.4) The Vienna Initiative European Bank Coordination Initiative (Vienna Initiative): EBRD / IMF-coordinated agreement between the parent banks of the largest local banks in the region 15 parent banks have made specific rollover and recapitalization commitments in five countries (Bosnia, Hungary, Latvia, Romania and Serbia) Joint IFI Action plan (EUR 25 bn support in October 2009) Next steps (Vienna Plus) to promote local currency lending and funding in the region Macedonia, June 2010

13 Michael Hysek, FMA 13 (4) The Way Forward 4.1A New Legal Framework 4.2The New EU Supervisory Architecture 4.3Cross-Border Cooperation 4.4Dealing with Foreign Currency Lending Macedonia, June 2010

14 Michael Hysek, FMA Macedonia, June (4.1) A New Legal Framework Better risk coverage More stringent capital requirements Constraint on procyclical effects Limitation of leverage Higher liquidity standards Hightened supervisory attention towards systemic relevant financial institutions (SIFIs) Strengthen resilience of financial sector Careful phase-in / grandfathering

15 Michael Hysek, FMA 15 Macro-prudential supervision European Systemic Risk Board (ESRB) Effective risk warning system Microprudential supervision European System of Financial Supervisors (ESFS) Establishment of sectoral EU-level authorities (ESAs: EBA, ESMA, EIOPA) Colleges of supervisors (4.2) The New EU Supervisory Architecture Macedonia, June 2010

16 Michael Hysek, FMA 16 Supervisory Colleges Continuous and reciprocal information flow (in normal times and times of crisis) Common understanding -Joint decision on models -Joint risk assessment / joint agreement on capital adequacy -Measures to be taken -Future examination programme Joint on-site examinations Strengthening of operational network (4.3) Cross-Border Cooperation Macedonia, June 2010

17 Michael Hysek, FMA 17 (4.4) Dealing with Foreign Currency Lending Financial crisis: ancillary risks relating to foreign currency loans (FCL) and loans with repayment vehicles (LRV) have become immanent Banks: refinancing risk, concentration risk, lawsuit risk, reputation risk Customers: exchange rate risk, interest rate risk, performance risk arising from the repayment vehicle Systemic risks: potential for adverse effects on financial market stability Macedonia, June 2010

18 Michael Hysek, FMA 18 Loans to private households in Euro Area, end 2009 (4.4) Dealing with Foreign Currency Lending Macedonia, June 2010

19 Michael Hysek, FMA 19 Foreign Currency Lending is both a domestic issue... (4.4) Dealing with Foreign Currency Lending Macedonia, June 2010

20 (4.4) Dealing with Foreign Currency Lending... as well as a CESEE issue Michael Hysek, FMA Macedonia, June

21 Examination of the compliance with the Minimum Standards Extension of Minimum Standards (Mar 2010) Self-regulation under supervision (Jun 2009) Recommendation to stop FC-lending (Oct 2008) Ongoing information campaigns Issuance of Minimum Standards (Oct 2003) (4.4) Measures taken on domestic market Michael Hysek, FMA 21 Macedonia, June 2010

22 Issuance: 22 March 2010 Scope: No new FCL to private households Exceptions: Households with a natural hedge Households with highest creditworthiness Households with expected cash flow in FC Other important items Extended rules to inform borrowers about inherent risks of FC loans Banks support of customers planning to convert their existing FC loans Banks have to present a strategy to reduce funding risks (4.4) The New Minimum Standards Michael Hysek, FMA 22 Macedonia, June 2010

23 (4.4) Austrias CESEE FCL Initiative Target: Reduction of volume and share of unhedged FCLs in CESEE via new business Scope: Initiative is exclusively focused on the flow and not on the stock of FC loans, yet banks should facilitate voluntary conversions. Challenges: Achieving a level playing field Coordination among home/host supervisors and IFIs Lack of long-term refinancing facilities in the local currency EBRD: Working Group on local currency development -Aim: joint public and private sector proposal on FC-lending and the development of local currency markets -Next Full Forum Meeting of the Vienna Initiative in September Michael Hysek, FMA 23 Macedonia, June 2010

24 (4.4) The Need for Coordination FC lending creates excessive risks threat for financial market stability International awareness is bound to increase: European Systemic Risk Board (ESRB) IFIs such as the IMF or the EBRD Sooner or later a number of supervisors/regulators will be faced with the issue of FCL. A timely coordination process can only improve our position! Michael Hysek, FMA 24 Macedonia, June 2010

25 (5) Conclusio The appropriate supervisory response to the financial crisis has to comprise a combination of several measures: Strengthening international coordination and cooperation Strengthening supervision as a complement to regulation Focus on strong, independent governance and risk management Need for stronger shock absorbers – however, careful phasing- in of new requirements as financial conditions improve Macroprudential overlay to capture systemic risks Michael Hysek, FMA 25 Macedonia, June 2010

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