The Austrian Financial Market Authority (FMA) has prescribed additional capital buffers for twelve Austrian credit institutions with effect from 1 January 2016. The FMA’s “Capital Buffer Regulation” has entered into force today following publication in the Federal Law Gazette. The regulation prescribes each credit institution individually (see table at FMA-website) to establish an additional systemic risk buffer, which will ultimately amount to up to 2 per cent of risk-weighted assets, and which must be held in addition to the CET1 capital requirement. Its aim is to increase the resilience of these credit institutions against the specific systemic risks that they encounter.
By issuing the regulation, the FMA has implemented a recommendation issued by the Financial Market Stability Board (FMSB). The systemic risk buffer acts as a cushion to absorb the long-term risks that arise from the high degree of interconnectedness between the banks, or which arise from their having similar exposures – so-called systemic concentration risk.
The Capital Buffer Regulation also sets the countercyclical capital buffer (CCB), the aim of which is to counteract the formation of risky credit bubbles. However, since excessive credit growth can not currently be observed in Austria, the CCB rate has been set at 0% initially. This rate will be evaluated by the FMSB on a quarterly basis in the future.
“The Capital Buffer Regulation is another milestone for the FMA in terms of increasing the quantity and quality of the capital base of Austrian banks. These individual risk-oriented capital buffers, which act as safety buffers, strengthen the stability of the financial market in Austria”, remarked the FMA’s Executive Board members, Helmut Ettl and Klaus Kumpfmüller.