The ACA reveals room for optimization as regards plans for bank resolution

Today, the Austrian Court of Audit (ACA) published the report "Bank Resolution in Austria" (in German).

The way to proceed in the event that credit institutions fail is uniformly regulated across the EU. In the wake of the financial crisis, during which the restructuring of banks via state aid had caused a great burden for taxpayers, the EU Member States adopted the establishment of the Banking Union. From 2014, this initiative has been gradually implemented with the aim to monitor and, if need be, also resolve credit institutions based on uniform regulations across the EU. This was, among others, to prevent a run by savers to withdraw their deposits, which would have been detrimental to the banking and deposit guarantee schemes.

The ACA assessed the scheme for the orderly exit of Austrian credit institutions from the market. The audit focused on the activities of the Financial Market Authority (FMA). The FMA Resolution Authority established within the FMA shall prepare the resolution plans for Austrian credit institutions (451 banks in 2018). The ACA assessed, among others, the quality of such plans. As regards the implementation of the Single Resolution Mechanism, the Oesterreichische Nationalbank (OeNB, central bank of Austria) and the Federal Ministry of Finance also play a significant role. The Single Resolution Board (SRB) established at the EU level is particularly in charge of credit institutions that are under the direct supervision of the European Central Bank. The SRB does not fall within the audit remit of the ACA. The audited period spanned the years from 2015 through 2018; relevant aspects related to 2019 were also taken into account.

Guarantee a swift resolution in case of a failure

If an insolvency proceeding is not feasible, for example because a credit institute performs critical functions for the Austrian financial market, the FMA Resolution Authority will have to set out a resolution strategy for a possible failure. In doing so, it has to identify all substantial obstacles and plan countermeasures. The ACA criticized that the FMA Resolution Authority, while providing for resolution strategies and instruments for the individual credit institutions in the assessed resolution plans of the planning cycle 2018, failed to elaborate concrete provisions for their implementation. In the event of a failure, the necessary swift implementation of the resolution strategies and instruments could therefore not be guaranteed. The ACA recommended to the FMA Resolution Authority to lay down the concrete terms of the resolution strategies and instruments as soon as possible. 

FMA should be able to carry out critical tasks as independently as possible

The FMA Resolution Authority was in charge of both the resolution planning as well as the actual resolution of credit institutions. As regards the critical tasks, the ACA criticized that the FMA Resolution Authority partly depended on the know-how of the OeNB. It recommended to the FMA Resolution Authority, the FMA, the OeNB and the Federal Ministry of Finance to ensure that the FMA Resolution Authority has the necessary independent expertise.

Resolution Authority supervises the portfolio reduction

The FMA Resolution Authority furthermore supervised the portfolio reduction of the three Austrian wind-down entities HETA ASSET RESOLUTION AG, immigon portfolioabbau ag and KA Finanz AG, which emerged from the former credit institutions HYPO ALPE–ADRIA–BANK INTERNATIONAL AG, Österreichische Volksbanken AG and Kommunalkredit Austria AG. In the period of 2008 to 2018, the Republic of Austria adopted comprehensive capital and guarantee measures. Of the capital support totalling EUR 12.108 billion, EUR 5.580 billion were provided to HETA, EUR 5.278 billion to KA Finanz AG and EUR 1.250 billion to immigon. Of the guarantees granted pursuant to the Financial Market Stability Act (Finanzmarktstabilitätsgesetz) totalling EUR 15.465 billion, EUR 11,859 billion expired by end-2018 without being drawn. As at 31 December 2018, immigon portfolioabbau ag recorded the lowest debt level; KA Finanz AG the highest.

Today, the ACA furthermore published the report "Targeted Contribution to Housing Subsidies from 2015 to 2018" (in German).