Austrian regulators won’t pursue a capital surcharge for the country’s biggest banks as European policymakers are debating how to adapt at the national level new rules to make global “too-big-to-fail” lenders safer.
In an effort to prevent another financial crisis, the Basel Committee on Banking Supervision said last month that banks deemed too big to fail must hold as much as 2.5 percentage points in additional capital. As many as 30 banks worldwide may face such surcharges. The debate is now turning to banks whose collapse could unsettle a particular country’s banking system even if they are too small to cause global havoc.
Helmut Ettl and Kurt Pribil, co-chairmen of Austrian financial supervisor FMA, said nations should have leeway to apply capital surcharges and other rules selectively and shouldn’t be forced to slap a surcharge on banks that are systemically important on a national level.
“Depending on management, risk, and other factors, we should be able to selectively” apply different measures to ensure banks don’t have to be bailed out by taxpayers, Pribil told reporters yesterday. “It doesn’t make sense to simply say that the surcharge must apply to a fixed set of banks.”
The European Commission is due to discuss new rules for national systemically important financial institutions, or SIFIs, Ettl said. Austria’s biggest lenders are Erste Group Bank AG (EBS), UniCredit SpA (UCG)’s Bank Austria AG and Raiffeisen Bank International AG (RBI), none of which are among the 30 banks that face the Basel surcharge.
Not Size Alone
The definition of systemically important banks must not rely on size alone, but also consider complexity and interconnectedness, Ettl added. Austria, for instance, had to bail out Hypo Alpe-Adria-Bank International AG in 2009, which was the country’s sixth-biggest bank with total assets of just 41 billion euros ($59.3 billion).
“We recommend that there is as much room to maneuver as possible for national supervisors to design the regulation of national SIFIs rather than relying on a simple capital surcharge,” Ettl said.
Austrian banks’ total assets make up 4.2 times the country’s gross domestic product, exceeding the euro area average of 2.8 times GDP, mostly because of their eastern European businesses.
Austria’s central bank, which shares responsibility for bank supervision with the FMA, has said the countries six biggest banks have less capital and rely more on wholesale funding than their peers in eastern Europe, and need to build up their risk buffers. The central bank estimates that the Alpine nation’s entire banking sector needs to raise 10 billion euros to reach the minimum requirements of new Basel III banking rules and to repay state aid.
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