Austria to Allow Regulators Early Intervention in Failing Banks

Austria’s bank regulator will be authorized to order banks to sell assets, raise capital or restructure liabilities when they begin to run into trouble, according to a draft law presented by the government.

The Finanzmarktaufsicht regulator, which oversees lenders in the Alpine republic together with the central bank, will be able to intervene before a bank actually falls below legally mandated capital levels, according to the draft released by the finance ministry today. Lenders would have to draw up advance plans, or living wills, for how to restructure and wind down their business in a crisis. The law is scheduled to enter into force next year if it passes parliament.

“The banking restructuring law increases the crisis resilience of the Austrian financial market and minimizes the risk that tax money has to be spent to rescue financial institutions,” Finance Minister Maria Fekter said in an OTS statement.

Austria, which lost its top debt rating at Standard & Poor’s last year mostly because of its banking industry, has 19.8 billion euros ($27 billion) at risk after it nationalized three lenders on the brink of collapse between 2008 and 2012. The bank restructuring law, which preempts European Union rules still under consideration in Brussels, was brought forward after last year’s nationalization of Oesterreichische Volksbanken AG.

Under the new law, a bank would have to specify measures needed to restore its financial health if it hits predefined triggers gauging its weakness. The measures to be prepared include the quick sale of assets, capital raisings, and debt restructurings. Separately, banks also have to draft wind-down plans that allow to continue “critical functions and core business areas” in case of an insolvency of the lender.

The FMA regulator can also call in shareholder meetings and propose capital measures and debt restructurings if a bank fails to present appropriate restructuring or wind-down plans, according to the law.