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					Session III:
The role of the Austrian Central Bank in the
ongoing financial market turmoil
Russian Economic and Financial Forum in Austria
Vienna, 30 November 2008

Michael Würz
Head, Financial Markets Analysis and Surveillance Division
Oesterreichische Nationalbank

www.oenb.at
         Financial market tensions emerged from the West

 Interbank market - 3M OIS Spreads
                                                                                             Loss in confidence resulting
         in basis points
 350
                                                                                             from US subprime-crisis
 300
                                                                                              - Markets for structured
                                                                                                products not/only to a
 250                                                                                            limited extent functioning
 200                                                                                          - Significant write-downs by
 150
                                                                                                large international banks
                                                                                              - Increase in interbank
 100
                                                                                                interest rates
  50
                                                                                              - Liquidity provision by
    0                                                                                           central banks
     7




                  7




                                7




                                         8




                                                   8




                                                            8




                                                                      8




                                                                                8




                                                                                         8
  .0




               .0




                             .0




                                      .0




                                                .0




                                                         .0




                                                                   .0




                                                                             .0




                                                                                      .0
                                                                                              - High stock price volatility
07




             09




                           11




                                    01




                                              03




                                                       05




                                                                 07




                                                                           09




    Source: OeNB, Bloomberg.                                                        11
                                             USD                EUR




  www.oenb.at                                                             -2-                                  oenb.info@oenb.at
  Latest wave hit the Austrian banks too
     Stock prices of Austrian banks
               1.7.2007 = 100                                       1.7.2008 = 100
    110                                                     120
                                                            110
    100
                                                            100
      90                                                     90
                                                             80
      80                                                     70
                                                             60
      70
                                                             50               Latest wave
                        First waves
      60                   First waves                       40
                                                             30
      50                                                     20
        7
        7

        7
        7

        7
        7
        8

        8
        8
        8
        8
        8



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                                                                                                                       8
     /0
     /0

     /0
     /0

     /0
     /0
     /0

     /0
     /0
     /0
     /0
     /0



                                                             /0




                                                                            /0




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                                                                                                        /0




                                                                                                                    /0
   07
   08

   09
   10

   11
   12
   01

   02
   03
   04
   05
   06



                                                           07




                                                                          08




                                                                                           09




                                                                                                      10




                                                                                                                  11
                  DJ EURO STOXX Financial Services   Erste Group Bank                Raiffeisen International Bank Holding
   Quelle: Bloomberg.




www.oenb.at                                          -3-                                                       oenb.info@oenb.at
  Indirect effects of turmoil affect operating profits and
  risk provisions
                          Operating Income (unconsolidated): +1.4%                                           Growth of Operating Profit
              in bn EUR
                                                                                                               and Risk Costs (yoy)
        14                                                                             40%                                                                     300%
                                         -1,2%
        12                                                        1.15
                          1.17                                                         30%
                                                                                                                                                               200%
                                         -9,1%
        10                                                        3.21
                          3.53                                                         20%
                                                                                                                                                               100%
         8                              +26,8%
                                                                  2.59                 10%
                          2.05
         6                                                                                                                                                     0%
                                                                                        0%
         4                              +11,4%
                                                                                                                                                               -100%
                          5.47                                    6.09                 -10%
         2
                                                                                                                                                               -200%
                                                                                       -20%
         0                0.33
                                                                 -0.33
                                        -198,3%
                                                                                       -30%                                                                    -300%
        -2
                                                                                           2005Q4   2006Q2    2006Q4      2007Q2        2007Q4        2008Q2
                          2007Q03                                2008Q03
                                         Other operating income
                                                                                                                 Operating profit (cons.)
                                            Net fees and commissions income
                                                                                                                 Operating profit (uncons.)
                                            Securities and investment earnings
                                                                                                                  Risk costs (uncons.) (right axis)
                                        Net interest income
        Source: OeNB.
                                       Trading income




www.oenb.at                                                                      -4-                                                                       oenb.info@oenb.at
  Liquidity conditions are challenging and closely monitored

        Funding markets dried up in autumn 2008, Austrian banks were also affected
             Tight liquidity conditions CHF and USD financing

        Non-Euro liquidity situation has improved

        General situation remains challenging

        OeNB is closely monitoring the situation
             Introduction of new weekly liquidity report
                The 24 largest banks report in- and outflows plus counterbalancing capacity
                Time horizons: up to 1 week, 1 month, 3 months and 6 months
                Currencies: CHF, EUR, GBP, JPY, USD and an aggregate of other FX
             Additional regular information exchange with banks reporting liquidity mismatches




www.oenb.at                                     -5-                                  oenb.info@oenb.at
  High deposit growth in Austria and Central, Eastern and
  South-Eastern Europe (CESEE)

                           Growth Rate of Deposits                                          Growth Rate of Deposits
                              in Austria (yoy)                                       of Austrian Subsidiaries in CESEE (yoy)
          15%                                                                        50%



          12%                                                                        40%



              9%                                                                     30%



              6%                                                                     20%



              3%                                                                     10%



              0%                                                                      0%02



                                                                                                 04



                                                                                                           02



                                                                                                                    04



                                                                                                                             02



                                                                                                                                       04



                                                                                                                                                02
              02


                       04


                                 02


                                           04


                                                     02


                                                               04


                                                                        02




                                                                                       Q



                                                                                                 Q



                                                                                                          Q



                                                                                                                    Q



                                                                                                                             Q



                                                                                                                                      Q



                                                                                                                                                Q
            Q


                       Q


                                Q


                                          Q


                                                    Q


                                                               Q


                                                                        Q




                                                                                     05



                                                                                               05



                                                                                                        06



                                                                                                                  06



                                                                                                                           07



                                                                                                                                    07



                                                                                                                                              08
          05


                     05


                              06


                                        06


                                                  07


                                                             07


                                                                      08




                                                                                   20



                                                                                             20



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                                                                                                                                  20



                                                                                                                                            20
        20


                   20


                            20


                                      20


                                                20


                                                           20


                                                                    20




                                                                                   Due to changes in reporting requirements the comparability of
                   Source: OeNB, unconsolidated figures.                              EE
                                                                                   CES growth rates before 2008 with more recent values is limited.




www.oenb.at                                                                  -6-                                                              oenb.info@oenb.at
      CESEE exposure of Austrian banks focussed on New
      Member States (NMS) in the EU

                                  CESEE Exposure

                    NMS-2004                                 NMS-2007             AT banks are ….
                                                               17%
                                                                                   … significant players in CESEE
                      56%


                                                                                   … diversified across the region but
                                                            SEE
      Source: BIS, Q2 2008.                                 14%                       exposure to NMS dominates
                                                   CIS
                                                   13%


      Share of CESEE Segment in Consolidated Pretax Profit                        Growth is redirected and partly cooling off
 90
 80


                                                                                  CESEE segment is highly profitable
 70
 60
 50
 40              Q2                        Q3                Q3          Q2

                                                                                  Major banks depend strongly on CESEE
                2008                      2008              2008        2008
 30
 20
 10
  0
                RZB                   Erste Bank         Bank Austria   VBAG


       Source: quarterly consolidated reports.


www.oenb.at                                                                    -7-                             oenb.info@oenb.at
Business model of Austrian banks in CESEE faces short run
challenge

Business model of Austrian banks in CESEE is in principle fit for
future
   – Retail banking based on a strong deposit base will emerge as a winner of the financial turmoil


Cut and run – no option for Austrian banks
   – Costs would outweigh benefits by far


Turmoil in CESEE represents a short run jeopardy for the long
and medium term growth potential
   – CESEE is an important contributor to EU-15 growth rates




www.oenb.at                                            -8-                                            oenb.info@oenb.at
  Austria‘s comprehensive financial stability package

  • Strengthening Banks‘ Confidence
       – Interbank Market Strengthening Act (up to 75 bn EUR):
      - Clearing house
      - Federal guarantee for securities issued by banks

  • Strengthening Banks‘ Capitalisation
       – Financial Market Stability Act (up to 15 bn EUR):
      - „Recapitalisation measures“

  • Strengthening Depositors‘ Confidence
       – Deposit insurance
      - physical persons: until end-2009 unlimited amount; afterwards up to 100,000 EUR
      - legal persons: 90% of up to 20,000 EUR.

  • Further measures:
      - Amendment in the Banking Act: „Capital Add-On“
      - Prohibition of Speculative short selling


www.oenb.at                                                  -9-             oenb.info@oenb.at
  OeNB‘s role in banking supervision and financial stability

  1. Banking Supervision:
  - 2 institutions (FMA and OeNB), but 1 process & joint responsibility
  - OeNB: fact finding, including risk assessment

                    On-site         Off-site                      Authority
                                                  Reporting
                  inspections       analysis                      function
          OLD     FMA/OeNB        FMA/OeNB          OeNB            FMA
         NEW         OeNB           OeNB            OeNB            FMA


  2. Financial Stability:
  - Comprehensive and recently extended mandate, based on the EC-Treaty
    and the National Bank Act: Monitoring of all circumstances that are of
    relevance for the safeguarding of financial stability in Austria


www.oenb.at                           - 10 -                          oenb.info@oenb.at
      Thank you for your attention!




www.oenb.at               - 11 -      oenb.info@oenb.at
  Austrian Clearingbank/Oesterreichische Clearingbank AG (OeCAG)


  • Legal basis is a temporary law to stabilise the Austrian interbank
    market
       – Austrian government backs a clearing house (OeCAG) to unfreeze interbank lending and debt instrument issuances of
         financial institutions
       – Guarantees amount up to 75 bn EUR
       – Expiration date of law is Dec. 31 st, 2009


  • Austrian Clearingbank (OeCAG):
       –   Founded on Nov. 14th, 2008 by major banks; Initial own funds: 180 mn EUR
       –   Business activities are conducted by OeKB and guaranteed by the Austrian government
       –   Participants are banks and insurance companies
       –   So far three auctions have taken place
              • Allocated volume in sum: 804.6 mn EUR; decreasing rates and increasing volume
       – Intention to raise additional funds through commercial paper auctions

www.oenb.at                                                  - 12 -                                       oenb.info@oenb.at
  OeNB‘s financial stability mandate

  Financial stability mandate inherent central banking task

  in Austria: comprehensive monitoring responsibility explicitly stipulated
     by the National Bank Act
       - combined with the obligation to report observations and findings of
         fundamental nature or particular importance to the MoF and the FMA

  Recent extension of data availability allows for integrated financial
    stability analyses

  Structured processes for core stability issues:
     - CESEE Risk Assessment
     - Risk Transfer                   Links/feedback-loops to banking
     - Extension of stress testing        supervision and vice versa!
      - Liquidity

www.oenb.at                          - 13 -                          oenb.info@oenb.at
 Specific focus on CESEE activities in banking supervision
 and financial stability

  Specific CESEE-meetings with the relevant Austrian banks

  Further extension of cross-border supervisory cooperation
    - Cooperation in the framework of so-called “colleges”
    - Joint/simultaneous on-site inspections
    - Joint seminars, conferences
    - ad-hoc meetings, cooperation in EU fora etc


  „CESEE Risk Assessment“ as core issue
  within the extended stability mandate of
  the OeNB


www.oenb.at                          - 14 -                   oenb.info@oenb.at
Cross-border banking supervision in the EU

  Consensus: cross-border banking groups require responses
   in the supervisory process, but: Quo vadis?


    OeNB‘s perspective:
    - “Lead Supervisor” is no option
    - decentralized European System of Banking Supervisors might emerge in the
      long-term (masterplan with milestones and timeline needed)
    - For the time being: evolutionary development of the model “national
      supervisory authorities & CEBS”
        → Colleges (delegation of tasks ok, but no change in home/host
             responsibilities)
        → via CEBS: European supervisory culture
        → ensuring that all banks are subject to the same (high) standards


www.oenb.at                               - 15 -                             oenb.info@oenb.at

				
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