Background for setting the buffer
The objective of the capital buffer for other systemically important institutions (O-SII buffer) is to identify credit institutions that are particularly significant for the functioning of the national economy, i.e. of national systemic importance. The methodology for identifying other systemically important institutions (O-SIIs) in Austria is primarily determined by the EBA Guidelines EBA/GL/2014/10 (Guidelines on the criteria to determine the conditions of application of Article 131 (3) of Directive 2013/36/EU (CRD) in relation to the assessment of other systemically important institutions (O-SIIs)). In a first step, the Guidelines require scores to be calculated based on nine indicators that are required to be applied that are calculated using consolidated data for all credit institutions (maximum 10,000 points). In Austria, all institutions with a score of over 275 (threshold) are classified as being of systemic importance, since on the basis of the criteria of i) size, ii) relevance for the economy of the European Union or the relevant Member State, iii) significance of cross-border activities, and iv) the institution’s interconnectedness with the financial system, they form a significant factor of influence for the stability of the financial system in Austria, and therefore in the event of their failure present a significant risk for the stability of the financial system and economy in Austria and the European Union.
In a second step, in accordance with the EBA Guidelines, national authorities should then assess whether other institutions are also to be classified as O-SIIs. For this purpose, further indicators were selected based on EU variables that additionally capture systemic risk that are now additionally calculated based solely on data for Austria. Furthermore, the findings of the credibility and feasibility tests as well as the analysis of the potential systemic risks arising from a deposit guarantee pay-out and the ability of allowing individual banks to become insolvent by the bank resolution authority are also considered. The indicator about “eligible deposits covered by the deposit guarantee system” pursuant to Annex 2 of the EBA Guidelines is specifically applied as defined in Title III of the EBA Guidelines, since payment difficulties of institutions with a high level of eligible deposits may result in a particular burdening or over-burdening of the system. In order to take this circumstance into account, the threshold of 3.00% of the share of eligible deposits (which corresponds to a value of 300 basis points) is used for classification as a systemically important institution.
In addition, a one-year observation rule is also applied when classifying an institution as being systemically important. In the event that an institution exceeds or falls below the threshold of 275 points, or the threshold for the share of eligible deposits of 3.0 %, for the first time a reclassification does not take place immediately, but only once excess or shortfall persists for longer than one year, i.e. provided that the threshold is again exceeded or fallen below when the following evaluation takes place.
Dependent on the score, or other additional indicators being exceeded, three relevance levels have been defined for Austria (see table), in order to be able to differentiate accordingly between the applicable level of the buffer rates. The O-SII buffer and the systemic risk buffer (SyRB) have a complementary effect, i.e. they supplement each other. During the transposition of CRD V into Austrian law, this interplay was taken into account accordingly through the additivity of the two buffers. In order to avoid overlaps with the SyRB (the same risk should not be addressed twice), the O-SII buffer sizes were reduced accordingly.
The setting of buffer amounts as well as the identification of other systemically important institutions take place based on an opinion by the Oesterreichische Nationalbank. Detailed descriptions about the methodology applied can be found on the Oesterreichische Nationalbank’s website.
| Relevance Level | Points score | O-SII buffer prior to consideration of overlapping with the Systemic Risk Buffer | Overlap | O-SII buffer following consideration of overlapping with the Systemic Risk Buffer |
|---|---|---|---|---|
| 1 | 275-636 | 1.0% CET1 | 12.5% | 0.9% CET1 |
| 2 | 637-999 | 1.5% CET1 | 12.5% | 1.30% CET1 |
| 3 | ≥1,000 | 2.0% CET1 | 12.5% | 1.75% CET1 |
When classified as O-SIIs for the first time, identified O-SIIs are notified by the FMA by means of an administrative decision.
Pursuant to Article 23d para. 7 BWG, the FMA is to prescribe a capital buffer requirement for other systemically relevant institutions domiciled in Austria by means of a Regulation, with the approval of the Federal Minister of Finance, taking into account relevant requirements of the European Banking Authority (EBA) and the European Systemic Risk Board (ESRB). In doing so, the FMA bases the buffer level on a recommendation by the Financial Market Stability Board (FMSB) as well as an opinion by the Oesterreichische Nationalbank.
In the event that the credit institution fails to meet the combined capital buffer requirement (see Article 24b BWG), then this results in restrictions on distributions (see Article 24 BWG) and the obligation to prepare a capital conservation plan (see Article 24a BWG).
Excerpt from the Explanatory Remarks to the Capital Buffer Regulation (KP-V 2021)
The malfunctioning or failure of a systemically important institution may lead to disruptions in the financial system as a whole or in parts of the financial system, resulting in severe negative effects in the financial system and in the real economy. Especially in times where there is high economic uncertainty, well-capitalised Systemically Important Institutions are an important prerequisite for maintaining Austrian banking system’s very good ratings and therefore comparatively low refinancing costs. The buffer for systemically important institutions aims to reduce the probability of malfunctioning or failure of a large, systemically important credit institution and the associated loss.
The EBA Guidelines (EBA/GL/2014/10) propose a two step process for identifying systemically important institutions. In a first step, institutions are identified based on indicators reflecting (i) size, (ii) relevance to the economy of the Union or the Member State concerned, (iii) importance of cross-border activities, and (iv) the interconnectedness of the institution or group with the financial system. In a second step, it is envisaged that national supervisors will use their expertise on the specific banking sector to ensure that all systemically important banks are identified as such, even if this would not be the case due to the mechanics of the first step. Since 2018, eligible deposits have therefore been taken into account as an additional indicator, as banks that have a high level of eligible deposits and would therefore represent a burden or excessive burden on the deposit guarantee system in the event of a deposit guarantee pay out event, have a high systemic relevance. In addition, banks that seem unremarkable based on the EBA score, but which have a particularly high exposure for one of the indicators applied according to the EBA Guidelines, also represent a potential threat to financial market stability. In addition, a one-year observation rule is also applied when classifying an institution as being systemically important. In the event that an institution exceeds or falls below the threshold of 275 points for the first time, or the threshold for the share of eligible deposits of 3.0 %, then a reclassification does not take place immediately, but only once excess or shortfall persists for longer than one year, i.e. at the time the following evaluation takes place.
|
Institutions identified as being of systemic importance |
Score 2021 |
Score 2022 |
Recommended O-SII buffer not taking uncertainty into account |
identified |
|
|
prior to overlapping |
after overlapping |
||||
|
consolidated level |
|||||
|
Erste Group Bank |
2.512 |
2.615 |
2.00 % |
1.75 % |
i.a. EBA score |
|
Raiffeisen Bank International |
1.835 |
1.978 |
2.00 % |
1.75 % |
i.a. EBA score |
|
UniCredit Bank Austria |
1.172 |
1.050 |
2.00 % |
1.75 % |
i.a. EBA score |
|
Raiffeisenlandesbank Oberösterreich |
522 |
507 |
1.00 % |
0.90 % |
i.a. EBA score |
|
BAWAG |
564 |
568 |
1.00 % |
0.90 % |
i.a. EBA score |
|
Raiffeisen-Holding Niederösterreich-Wien |
293 |
263 |
1.00 % |
0.90 % |
1 year observation |
|
Volksbanken Verbund |
199 |
196 |
1.00 % |
0.90 % |
eligible deposits |
|
|
|
|
|
|
|
|
Unconsolidated – individual level |
|||||
|
Erste Group Bank |
1.096 |
1.188 |
2.00 % |
1.75 % |
i.a. EBA score |
|
Raiffeisen Bank International |
1.125 |
1.195 |
2.00 % |
1.75 % |
i.a. EBA score |
|
UniCredit Bank Austria |
1.076 |
1.160 |
2.00 % |
1.75 % |
i.a. EBA score |
|
Raiffeisenlandesbank Oberösterreich |
471 |
514 |
1.00 % |
0.90 % |
i.a. EBA score |
|
BAWAG |
506 |
572 |
1.00 % |
0.90 % |
i.a. EBA score |
|
Raiffeisenlandesbank Niederösterreich-Wien |
292 |
260 |
1.00 % |
0.90 % |
1 year observation |
|
Erste Bank der oesterreichischen Sparkassen |
220 |
235 |
1.00 % |
0.90 % |
eligible deposits |
In addition, the FMSB’s recommendation is followed to limit the additive requirements from the systemic risk buffer and the capital buffer for systemically important institutions to an additional maximum 0.5 percentage points. Without such a limit, the expiry of the temporary reduction of the buffer in conjunction with the first time introduction of additivity would have led to a stronger increase in effective buffer rates for a few institutions. The reasons for a limit of an additional maximum 0.5 percentage points are both the uncertainties arising from war in Ukraine, increased energy prices, high inflation as well as the expiry of one-off effects from macro and financial policy assistance during the course of the COVID-19 pandemic, that posed new challenges for banks’ business models (e.g. due to borrowers’ reduced ability to service debts and increased operating costs).
From taking current uncertainties into account in the form of a limit on increasing the effective combined buffer rates for the systemic risk buffer and the O-SII buffer of 0.5 percentage points, lower buffers have been set for individual institutions compared with the values contained in the table.