1. Bank supervision
The Austrian Financial Market Authority (FMA) and the Austrian
National Bank (OeNB) are responsible for supervising credit
institutions. As of November 4 2014, the European Central Bank
(ECB) assumed direct supervision over major Austrian credit
institutions in line with the Single Supervisory Mechanism
(SSM). The banks classified as non-significant are supervised
by the national authorities under the supervision of the
However, the cooperation of the Austrian authorities with
the ECB and the SSM's joint supervisory teams has yet to
2. Bank recovery/bail-in
The Bank Recovery and Resolution Directive (BRRD) has been
implemented in Austria through the Austrian Banking Recovering
and Resolution Act (BaSAG), which entered into force on January
1 2015. The resolution process of Heta (formerly Hypo Alpe
Adria) is the first to take place in Austria under this
BaSAG has also implemented the BRRD bail-in tools in section
85 subsection BaSAG. Before the BRRD implementation, Austrian
law did not provide for a unilateral bail-in tool.
Under this regime, the FMA formed a new authority –
the National Resolution Authority (NRA) – within the
FMA for banking resolution. The European resolution authority,
the SRB, will subsequently take on large parts of the FMA's
responsibility as from 2016 at the latest.
As of January 1 2016, it is expected that credit
institutions will need to meet minimum requirements for own
funds and eligible liabilities (MREL) to ensure the feasibility
of a bail-in.
Capital conservation buffer follows the CRD IV
framework (see section 23 in connection with section 103q point
11 Austrian Banking Act – BWG).
January 1 2016 – 0.625%
January 1 2017 – 1.25%
January 1 2018 – 1.875%
January 1 2019 – 2.5%
Countercyclical buffers follow the CRD IV
framework (see section 23a in connection with 103q point 11
January 1 2016 – 0.625%
January 1 2017 – 1.25%
January 1 2018 – 1.875%
January 1 2019 – 2.5% (although the FMA can set a
higher amount if required).
The FMA will publish the countercyclical buffer rate used to
calculate the institution-specific buffer on a quarterly basis
on its website.
Domestic Sifi buffer
In Austria, domestic Sifis are referred to as systemically
important institutions (SIIs). These may be required to hold an
individual SII buffer of up to 2% as of January 1 2016 (see
section 23c paragraph 5 BWG).The buffer is subject to a joint
review by the FMA and the OeNB on at least an annual basis (as
set out in article 131 paragraph 6 lit b CRD IV).
Global Sifi buffer
Global Sifis are referred to as global systemically
important institutions (G-SII) in Austria. The G-SII buffer
will be phased-in from January 1 2016 and will be set between
1% and 3.5% on an individual basis (see section 23b BWG and
article 131 paragraph 9 CRD IV).
In 2016, G-SIIs only need to fulfil 25% of their individual
G-SII buffer requirement. The percentage increases to 50% in
2017, 75% in 2018 and 100% from 2019 (see section 103q point 12
Systemic risk buffer
The systemic risk buffer of at least 1% is already
applicable. It is not capped, although the EC and other EU
authorities need to be involved in the decision-making process
if the FMA intends to raise the buffer above 3%.
4. Call options
Austria has not issued any rules with regard to regulatory or
tax calls in addition to the CRR.
5. Coupon payment
Beyond the CRR and leaving aside resolution measures, the BWG
empowers the FMA to limit an Austrian institution's discretion
to pay coupons/dividends on own funds instruments. The FMA may
exercise this power if it has doubts as to the institution's
ability to permanently comply with certain regulatory
requirements, in particular with liquidity and capital
requirements. This might, for instance, be the case if a large
decrease of the own funds ratio occurs, even though the
institution might still comply with combined buffer
If the FMA exercises these powers, discretionary payments
and distributions may be limited to the institution's annual
net income. Austrian law does not provide for clear guidance on
how the maximum distributable amount (MDA) is calculated in
6. Credit default swap contracts
Austria has not issued any rules with regards to the use of
credit default swaps or other tools to mitigate credit risk in
addition to the CRR.
CRR disclosure rules apply, including obligations to disclose
information in relation to compliance with countercyclical
capital buffer requirements. The FMA will disclose G-SII
buffers and information on systemic risk buffers, if imposed on
Institutions are obliged to publish their CET1 ratios, both
on a solo and group basis (see section 65 BWG and section 64
paragraph 1 point 16 BWG).
8. Leverage ratio
There are no plans to implement leverage provisions on top of
the requirements under the CRR.
The issuance of additional tier 1 capital (AT1) has an
impact on the leverage ratio, even though in general only
marginally, as AT1 counts towards the ratio's nominator and
denominator, unless other equity positions are replaced.
The liquidity ratio requirements will be introduced on
October 1 2015 in accordance with the following phasing-in
(article 460 CRR together with article 38 of the Commission
Delegated Regulations with regard to liquidity coverage
60% of the liquidity coverage requirements as from October
70% as from January 1 2016,
80% as from January 1 2017,
100% as from January 1 2018.
Credit institutions will calculate the liquidity coverage
ratio according to the following formula (as set out in article
4 of the Commission Delegated Regulations):
Liquidity buffer/net liquidity outflows over a 30 calendar
day stress period = LCR (%)
The term 'liquidity buffer' will have the same meaning as
the BCBS's definition of high quality liquid assets (HQLA). A
more detailed description is also included in article 7 of the
Commission Delegated Regulations.
9. Loss absorption features
Loss absorbency features of AT1 and tier 2 instruments follow
the CRR. To this end, only AT1 provides for going-concern loss
absorption. Both AT1 and tier 2 provide for gone-concern loss
absorption, as they qualify as subordinated debt.
With the BaSAG, shareholders and holders of other
instruments of ownership, including AT1 and tier 2 instruments,
will be the first stakeholders to contribute to the resolution
by means of a mandatory write-down/cancellation/conversion of
their instruments, taking account of the ranking of these
instruments in insolvency proceedings.
The 'no creditor worse-off than under normal insolvency
proceedings' principle will apply (see section 107 paragraph 2
10. Minimum capital
Austria follows the CRR requirements, which are (see section 22
BWG and article 92 CRR):
Minimum CET1 ratio
January 1 2013 – 3.5%
January 1 2014 – 4%
January 1 2015 – 4.5%
Minimum tier 1 ratio
January 1 2013 – 4.5%
January 1 2014 – 5.5%
January 1 2015 – 6%
Minimum total capital
11. Pillar 2
The FMA has not issued guidance on additional pillar 2
Austrian law provides guidance on pillar 2 requirements. It
focuses on the joint responsibility of the management board,
general risk management requirements, organisational duties,
documentation, resources, and outsourcing. The rules are, in
some cases, stricter than the CRD IV framework, for instance
the provisions governing variable remuneration.
Local law provisions under pillar 2 focus on notifications
to the regulator, not on disclosure. However, disclosure of
compliance with pillar 2 requirements is mandatory under the
CRR when it comes, for example, to variable remuneration.
12. Qualifying capital
Instruments recognised as CET1 in Austria are defined by
article 50 CRR, and include common shares, retained profits and
other equity instruments.
Capital instruments issued by Austrian savings banks and
cooperative societies may also qualify as CET1 if they comply
with the conditions set out in the CRR.
CRR requirements apply to AT1 securities, including minimum
5.125% (article 54 CRR) trigger, loss absorbing, perpetual with
no incentive to redeem, subordinated, distributions fully
flexible and paid out of distributable items.
Standard CRR requirements apply to tier 2.
Deferred tax assets
Deferred tax assets that rely on future profitability and
existed before January 1 2014 need to be deducted in full from
CET1 from January 1 2024 (article 478 (2) CRR).
A phase-out begins on January 1 2015, after which 10% of
those deferred tax assets that rely on future profitability
need to be deducted. This increases by 10% annually and reaches
90% in 2023 (see article 478 para 2 CRR and section 3 subsq
CRR-BV).With regard to deferred tax assets created in 2014 or
later, 20% needs to be deducted in 2014, 40% from January 1
2015, 60% in 2016, 80% in 2017, and 100% from January 1
The FMA has not allowed institutions in their elements of
own funds to disregard unrealised gains and losses relating to
exposures to central governments of countries belonging to the
EU, recognised within the AFS portfolio.
This treatment may change once the European Commission
adopts a regulation endorsing the International Financial
Reporting Standard (IFRS) which replaces IAS 39. This was due
in 2015 but the International Accounting Standards Board voted
in February 2014 to postpone its compulsory adoption of IFRS 9
Instruments that no longer qualify as own funds will in
general be de-recognised over an eight-year period, starting in
2014. As of January 1 2015, 70% will remain recognised. This
decreases to 60% in 2016, and so on. As of 2022 (see article
486 point 5 CRR) instruments that no longer qualify as own
funds will be fully de-recognised.
13. Regulatory intervention
Regulatory intervention powers under the Austrian law will be
tested by the Heta case – as of today, no precedents
The impaired assets, rights, and liabilities of Hypo Alpe
Adria were transferred to Abwicklungsbank HETA (a kind of 'bad
bank') under mechanisms that were available under corporate law
at that time. The same happened with Kommunalkredit and the
split into KA Finanz as a 'bad bank'.
As a result of the 2014 stress test, all Austrian banks have
met the required 8% of CET1 after the asset quality review.
Under the adverse scenario, only five banks reached the
required CET1 ratio of 5.5%.
The Austrian Federal Banking Act does not use the term
'stress test' in connection with the FMA's supervisory duties.
However, article 69 subsq BWG entitles the FMA together with
the OeNB to carry out on-site inspections and to obtain
specific information to determine systemic risks. The FMA and
the OeNB must jointly define an inspection plan for each
upcoming calendar year. The aim of this plan is to inspect the
top eight Austrian banks at least once a year. The remaining
regional banks are inspected every three years.
Article 70 BWG empowers the FMA to take temporary measures
to ensure the financial market's stability. These measures
include but are not limited to the specification of additional
own funds requirements to cover extended liquidity risks. All
measures have to be issued by administrative rulings
Further to the above, article 44 BaSAG empowers the FMA to
carry out early intervention measures
(Frühinterventionsmaßnahmen) if an
institution were to fail in the future (eg, due to a negative
development in the liquidity situation) to comply with the
standards set by the CRR, the CRD IV, the MiFID II and the
MiFIR. By enacting these early intervention measures, the FMA
may oblige the management of an institution to take actions
defined in the recovery plan. The articles of both the BWG and
the BaSAG are based on the supervisory review and evaluation
process as described in the CRD IV.
14. Stress tests
The following Austrian banks and their subsidiaries
participated in the 2014 European Banking Authority (EBA)
stress test: Erste Group Bank, Raiffeisen Zentralbank, BAWAG
PSK, OeVAG, RLB OOE and RLB NOE-W.
15. Tax treatment
Unlike Germany, in Austria there is no official clarification
of the tax treatment of AT1 instruments compliant with the
Basel III requirements (CRR, CRD IV). It needs to be assessed
according to general principles of tax law, whether the
criteria for debt or equity prevail in a qualitative
perspective. The fact that the instrument does not provide for
a participation in any value increases at redemption or
liquidation of the issuer is considered a very negative aspect
of an equity instrument for tax purposes, although balance
sheet equity will be given in many cases (in case of a full
loss participation). According to literature and an informal
statement of the Austrian Ministry of Finance, coupon payments
for AT1s based on article 51 of Regulation 575/2013 of June 26
2013 should be tax deductible in Austria. However, it is
recommended to take advice on a case-by-case basis.
For AT1s regarded as debt instruments for tax purposes,
non-Austrian tax resident corporate investors are not subject
to withholding tax on interest payments received from an
Austrian issuing bank. For Austrian tax resident investors,
withholding tax applies. This tax will be deducted by the
Austrian custodian or paying agent of the bank where relevant
AT1s are deposited in a custody account. In the case of
non-Austrian tax resident individuals as investors, ordinary
withholding tax (relief according to double taxation
conventions available) or EU withholding tax needs to be
In the case of a write-down of AT1s qualifying as debt
instruments for tax purposes due to the realisation of a
trigger event, the amount by which the repayment capital is
reduced should lead to a taxable gain at the level of the
issuing bank. Correspondingly, a subsequent increase of the
capital to be repaid should lead to tax-effective expenses.
16. Treatment of mutuals and Sifis
Only one Austrian Bank, the Erste Group Bank, has qualified
through the EBA as a G-SII. The FMA intends to publish a list
of national O-SIIs before the end of 2015.
According to article 131 section 1 2013/36/EU, each member
state has to designate a national authority in charge of
identifying G-SIIs and O-SIIs. In Austria, according to section
23b (1) BWG, which will come into force on January 1 2016, the
FMA is responsible for identifying G-SIIs.
According to section 8 BaSAG, all Sifis are obliged to
prepare a recovery plan imposing measures for financial
Rules on the ring-fencing of risks will enter into force in
July 2015, subject to transitional rules. Even though these
rules do not explicitly require a bank to be systematically
important in order to fall within the scope of the ring-fencing
regime, factually only systematically important banks are
likely to be caught by the provisions.
For mutuals, CRR provisions apply.
Partner, Binder Grösswang
T: +43 (1) 534 80 – 230
F: +43 (1) 534 80 – 8
Tibor Fabian has been a partner at Binder
Grösswang since 1996. Before his professional
career as a lawyer, he worked as the head of
international project finance at Österreichische
Länderbank and as an assistant to the chairman of
Oesterreichische Kontrollbank. His practice focuses
mainly on banking and finance, capital markets, real
estate and structured finance. His recent experience
includes the representation of an Austrian cooperative
banking sector in the setting up of a group pursuant to
Art 3 CRD and in the ongoing reorganization of the
group. He advises Austrian issuers, particularly banks,
on DIP and MTN-Programmes and was involved in the
stabilization of the Austrian
Pfandbriefbank/Pfandbriefstelle after the
Attorney at law, Binder Grösswang
T: +43 (1) 534 80 – 460
F: +43 (1) 534 80 – 8
Maurizia Anderle-Hauke joined Binder Grösswang
as an attorney at law in 2013. Before that she worked
for renowned law firms, including Benn-Ibler and DLA
Piper Weiss Tessbach. Her practice focuses mainly on
banking and finance, capital markets, regulatory and
here to download the pdf.