Austria

Author: | Published: 9 Jul 2001
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Market structure & trends

The Austrian banking environment is characterized by a marked division: A few major banks dominate key accounts, capital market, and international business, while the remainder of mid-size and smaller institutions divide the rest of the market among themselves. The major banks are concentrated in Vienna, and represent the universal banks. From a regulatory standpoint, there is no real separation between investment and commercial banks in Austria. When banks divest themselves of their investment banking activities, they do so in completely supervised units.

In comparison with the rest of Europe, Austrian banks exhibit one of the most dense branch networks. In the past several years, the process of consolidation in the industry has not only been shown through the reduction of branches, but has also been taking place with the banking institutions themselves. This has proven to be one of the consequences of the international development of concentration into ever-larger units, along with the privatization that began in the early 1990s. Bank Austria's acquisition of Creditanstalt in 1996/97 was a milestone in this development, surpassed only by the acquisition of Bank Austria by Hypo Vereinsbank of Bavaria last year. Erste Bank's acquisition of Girocredit represented an important step towards the streamlining of the savings bank sector, and the acquisition of the Austrian Postsparkasse by BAWAG this year certainly does not signify the conclusion of this trend. These acquisitions were made possible by the changes made in the regulations governing restructuring of the previously virtually ownerless savings banks, which were then transformed into corporations whose shares could be retained by private foundations.

The fact that the banking industry is established into sectors is characteristic of Austrian banking, and can be elucidated by its historical development. The sector to which an individual bank belongs is determined by its legal form as well as its membership in a particular trade organization within its respective organization of the Chamber of Commerce.

The various trade organizations are:

  • stock corporation banks;
  • saving banks;
  • agricultural credit cooperatives;
  • trade credit cooperative banks; and
  • mortgage banks.

The corresponding building societies for each sector also belong to these trade organizations. In addition, there are also specialized institutions, such as Oesterreichische Kontollbank, which handles export financing for the Republic of Austria, Investkredit, which processed investment credit programmes for the economic sector in the early post-war years and developed into an investment bank for the industrial and medium sized business sector, and still others. Even so, the lines drawn between these sectors are becoming increasingly blurred. The initial separation between the banks' business activities has been progressively softened by legislation, legally opening practically the entire sphere of banking business to all banks. At this point, the only decisive factor regulating what business activities a banking institution may conduct is the licence issued by the Federal Ministry of Finance.

Foreign banks are also quite active in Austria. These banks generally do not operate in the main segment of the business, but rather concentrate upon a few areas of operation. These areas include capital market activities, key account business, and asset management, though they usually do not cover consumer lending, which requires a relatively large number of branches.

While these foreign banks were (at least legally) organized as independent subsidiaries of Austrian banks before Austria's accession to the EU, these became national branches of their foreign parent companies since the introduction of the freedom of establishment according to the relevant EU Directives. In addition to better corporate integration in their non-Austrian banking groups, these institutions are also no longer subject to Austrian banking supervision, but rather to that of their EU member state.

EU law has had a definitive influence upon the Austrian banking environment. Over 150 foreign banks have registered for banking services in Austria in the context of the freedom to establish branches and provide services. This fact alone is indicative of Austria's significance as a financial platform for international business. Austria is also seen as a springboard for business in eastern European markets, as Austrian banks are well represented in eastern European countries, representing an ideal addition for banks which are active internationally.

Further mergers and acquisitions are therefore likely in the near future. Several Austrian banks are already working in cooperation with foreign institutions, as their affiliation is based on common ownership. Bank Austria will absorb Creditanstalt (whose continued existence Bank Austria was required to guarantee for five years in the course of the acquisition in 1996), therefore abandoning their previously followed two-trademark strategy, though Creditanstalt's name will be retained. The integration of Bank Austria into the Bavarian Hypo-Vereinsbank group is moving forward. Erste Bank and Raiffeisen Zentralbank are distinctly Austrian major banks, though the latter has announced that it would be open for a cooperation with foreign partners, at least for eastern European business operations.

The main regulatory bodies and their powers

The most important banking regulatory body is the Federal Minister of Finance. He issues licences for banking business and supervises its operation. His responsibilities include the supervision of compliance with regulations applicable to non-Austrian banks, if they conduct banking business in Austria by virtue of the freedom to provide services and the freedom to establish branches. Although these non-Austrian institutions are subject to the regulatory laws of their EU home country, the Federal Minister of Finance imposes sanctions for any violation of banking laws in cooperation with the relevant home country's authorities. In cooperation with the Austrian National Bank (Oesterreichische Nationalbank), the Federal Minister of Finance may inspect a bank's records, obtain audit reports and information from the bank's auditor, initiate special audits and appoint special representatives to supervise compliance with banking regulations. In order to protect bank creditors, the Federal Minister of Finance may issue orders against credit institutions, aimed at prohibiting, for example, the withdrawal or distribution of capital or profits. He may appoint government commissioners and endow them with comprehensive powers, remove a bank's management and even prohibit a credit institution from conducting any further business.

Credit institutions whose balance sheet total exceeds euro363 million ($313 million) are supervised by a state commissioner appointed by the Minister of Finance.

The Oesterreichische Nationalbank is another important body that, in addition to acting as a regulatory body, also maintains monetary policy responsibilities as part of the European System of Central Banks and within the European Central Bank. It is organized as a stock corporation - half of its capital is owned by the Republic of Austria and the other half by various Austrian credit institutions and public institutions. It conducts sovereign tasks such as, for example, supervising the Foreign Exchange Act and granting foreign exchange trade licences by virtue of this Act. Other responsibilities include the collection, compilation and processing of statistical reports of the credit institutions for the banking supervision authority.

The Federal Surveillance Authority is another important body whose main responsibility includes supervising the securities sector. It grants licences under the Securities Supervision Act to securities firms desiring to provide securities services. These are mainly services covered by the Investment Services Directive centering upon the brokering of business opportunities for the purchase and sale of financial instruments and in the fields of asset management and consulting. It supervises the compliance of financial service providers with fair trade practices, takes up cases of suspected insider trading and supervises the compliance with the publicity regulations applicable to listed corporations. All securities firms and banks must provide the Securities Surveillance Authority with defined information about securities transactions both on and off the stock exchange.

It should be noted in this context that the Federal Ministry of Finance also acts as a regulatory authority for the distribution of investment fund certificates. Applications for the listing of Austrian and non-Austrian funds have to be filed with the ministry, and it is the Ministry of Finance that is responsible for continuous supervision of information and reporting duties.

A separate registration office exists at the Oesterreichische Kontrollbank which collects the publications (offering circulars) required under the Capital Market Act for public offers for securities and investments. Aside from ensuring compliance with other publicity requirements that may exist, a complete offering circular must be submitted to this registration office one working day prior to the submission of public offers.

Any violation of these publicity requirements imposed by the Capital Market Act is intercepted by the registration office and referred to the Minister of Finance and the Oesterreichische Nationalbank for processing.

Types of financial institutions and key legislation/regulatory developments

The 1993 Banking Act lies at the heart of the laws that govern the finance sector. It exhaustively defines the banking business whose operation requires a banking licence, and transposes the rules incorporated in the Second EU Banking Directive for the operations of credit and financial institutions from member states (Single Passport Principle) in the context of the freedom to provide services and the freedom to establish branches. In addition, it lays down the conditions for Austrian operations of foreign banks from other third countries. It governs solvability (capital adequacy), liquidity, large-scale investments, shareholdings and bank groups as well as the savings deposit business and consumer transactions. The Act incorporates also the important banking secrecy regime, which remains one of the best, despite money laundering regulations (the know-your-customer principle) having resulted in more stringent regulations.

Banks are required to install internal control mechanisms, and their financial statements must follow detailed accounting and reporting regulations. Structural provisions are supposed to facilitate the restructuring of banks into modern legal entities and organizations. Last but not least, the Act also contains provisions covering deposit guarantee schemes as well as investor compensation.

Savings banks are governed by the provisions of the Savings Bank Act. This Act does not primarily regulate the conduct of banking business, but focuses on the liability of the authority guaranteeing the savings bank's obligations (Gewährträgerhaftung) and the internal constitution of savings banks that are usually ownerless as well as the provisions governing their reorganization. These provisions triggered a concentration within the savings bank sector; as a result, there is increasing homogeneity in this sector's appearance.

Mortgage banks are subject to the Mortgage Bank Act along with related provisions on the issue of mortgage-backed debt obligations (Pfandbriefe). Only mortgage banks have the right to issue bonds for loans that are secured by liens registered in the land register for the benefit of the mortgage bank. Claims against certain political subdivisions may operate as further securities for the benefit of these bonds.

The Oesterreichische Kontrollbank is a specialized banking institution for the export industry, and is subject to special laws governing the grant of export guarantees and the refinancing of export-guaranteed claims. Similarly, the Republic of Austria's Finanzierungsgarantiegesellschaft (FGG) operates by virtue of a legal basis that was specifically created for this company. Its responsibilities include the assumption of liabilities, the provision of venture capital, and the realization of project business also in eastern European countries.

Key provisions governing securities firms are laid down in the Securities Supervision Act, which transposed the Investment Services Directive into Austrian law. The Securities Surveillance Authority, installed by this Act, is responsible for the supervision of the securities market. It collects all reports on securities transactions, supervises compliance with fair trade practices, and monitors insider trading. The issuing business is a form of banking business in Austria, and therefore requires a banking licence. A licence obtained under the Securities Surveillance Act would not be a sufficient underwriting qualification. According to the Securities Surveillance Act, securities service providers must never become their clients' debtors; accordingly, these companies are never eligible for firm subscriptions (underwriting).

As a result, Austrian banks are universal banks, and no separation exists between investment banks and commercial banks. More often than not, Austrian banks hold comprehensive licences covering all forms of banking business (including the acceptance of deposits) as well as the investment banking business, and the banks conduct any of these operations to a greater or lesser extent. Aside from accepting deposits, banking business includes carrying out payment transactions, credit business, custody business, foreign exchange and foreign currency business, trading in financial instruments, issuing of securities business, investment fund business, factoring business and further activities listed exhaustively in the Banking Act.

Insurance supervision is governed by the Insurance Surveillance Act which, similar to the Banking Act, lays down the structures for insurance activities. Contrary to the banking surveillance scheme, insurance surveillance is conducted by a separate department within the Federal Ministry of Finance, whose responsibilities also include reporting and – given the few number of insurance companies – this department may exercise direct control. This surveillance system can hardly be implemented in the banking industry due to the considerable number of banks and the significant amount of reportable information. In addition, insurance surveillance costs are mainly borne by the insurers themselves, while banks do not at present pay directly for banking surveillance. Due to these two different systems, finding an all-finance surveillance with one single authority acceptable to all parties involved will likely be problematic, although the government strongly favours and pursues this type of solution. Given the present political environment and most likely the requirement of a super-majority in the Austrian Parliament, any such law on the introduction of all-finance surveillance would be difficult to implement politically and will require much compromise.

Establishing an operation

A banking licence is mandatory for commencing banking business in Austria. This licence can be obtained on application from the Federal Ministry of Finance. The requirements necessary for obtaining this licence are laid down by the Banking Act, the fulfillment of which entitles the applicant to the licence. The Federal Minister of Finance then cannot deny issue of the licence; there is also no limit as to how many banking licences may be issued.

A bank must have a minimum capital of euro5 million. The application for the licence must be accompanied by a detailed business plan for the following three years, among other documents. The bank must have two managing directors, one of whom must be continuously present in Austria and have good command of the German language. They are required to have appropriate experience in the area in which the bank intends to operate, in addition to a clean record, ie have no previous criminal convictions. Furthermore, the ownership structure is to be disclosed to the Federal Ministry of Finance, and all persons who have or could have a substantial amount of influence on the bank are to be trustworthy. If the bank's shareholders are non-Austrians, the Federal Ministry of Finance will contact the authorities of the shareholders' home country in order to confirm that the establishment of the bank in Austria is not objectionable from the standpoint of the home country.

As previously mentioned, these provisions are not applicable for credit and financing institutions from EU member states who would like to conduct banking business in Austria within the context of the freedom to establish branches or provide services. Such institutions are subject only to the supervision of their home country and must notify their home country's authorities of their intended business activity in Austria; the authorities then in turn notify the Federal Ministry of Finance (single passport principle).

Should the application for a licence not be accepted, the applicant may also dispute the refusal of a licence as a case before a public law court. Generally, however, this is not the case, as usually the requirements for obtaining a licence are discussed directly with the Federal Ministry of Finance and possible difficulties are often eliminated beforehand, or the licence is not applied for after all as it is not likely to be successful. In the past several years there was notably only one judicial dispute due to a licence not being issued, involving the Rieger Bank regarding their application for a foreign exchange trade licence. The Nationalbank refused the licence repeatedly, so that it could only be obtained before the supreme courts by first exhausting all means of legal redress. Ultimately, the Rieger Bank could not really benefit from it after all, as it went bankrupt very dramatically roughly two years ago.

The banking licence may be withdrawn if the bank does not commence its business after 12 months following the issue of the licence, or is not in operation for more than six months. Further grounds for withdrawal include: the licence having been obtained through false statements or deceit, or if the bank is unable to fulfil its obligations to its creditors, if the requirements for the licence can no longer be fulfiled or if there are violations of the bank supervision laws or regulations when, in the latter cases, the normal functioning of the bank cannot be ensured by other measures.

If a bank should also choose to conduct business involving accepting bank deposits, or provide certain securities services, it is required to join a deposit guarantee scheme. It is required to join the scheme in the sector to which it belongs. Failing such a deposit guarantee, the licence for accepting bank deposits or providing such services expires automatically. The deposit guarantee schemes are financed by the member institutions of the individual sectors. The deposit guarantee schemes of the other sectors may only be proportionally used if the maximum amounts for which each sector is liable are exhausted. If the required amount cannot be raised in this manner either, the deposit guarantee scheme of the sector may then also issue bonds for the refinancing. Private individuals' deposits are insured up to euro20,000 for each depositor; deposits made by corporate bodies are insured at 90%, not exceeding euro20,000.

Financial services online/e-banking

The E-Commerce Directive and the Directive on Electronic Signatures have laid down the legal framework for electronic commerce.

The Austrian Act on Signatures, which entered into force in Austria on January 1 2000, transposed the provisions of these EU Directives and governs the provision of signature and certification services as well as the use of electronic signature methods in the internet. According to the Austrian Act on Signatures, a secure electronic signature has the legal status of a personal signature in writing, unless otherwise provided by law or agreed between the parties in a particular case (the question of whether an e-mail satisfies the written form is predominantly answered in the negative at present).

On June 1 2000, the Austrian Distance Marketing Act, which specifically regulates consumer contracts in distance marketing, entered into force. The Distance Marketing Act covers consumer protection in connection with the distance marketing of goods or services, although the scope of application of the Act expressly excludes financial services.

An increasing number of Austrian banks provide their customers with the option of handling their banking business electronically via the Internet. There is already a proposal for a European Parliament and Council Directive concerning the distance marketing of consumer financial services in existence, the purpose of which is to lay down a uniform framework for financial services in the internal market. The scope of protection offered to consumers of financial services in distance marketing is supposed to be adjusted to match that available in the context of the supply of other goods and services. Although not yet adopted, the draft incorporates comprehensive information duties and allows consumers to rescind a contract.

As long as Austrian law cannot offer special customized solutions, problems arising in connection with electronic banking business must be solved traditionally with the help of contract law. Discussion focuses in particular on the question of which duties of care the bank has to comply with when offering online banking (for example, whether the bank, in processing electronic debit orders, must only concentrate on the indicated account number or is under an obligation to verify an inconsistency, if any, between the recipient's name and his account number) or liability issues in connection with the issue of electronic transfer orders by third parties misusing the customer's identification criteria.

The Data Protection Act 2000, having transposed the EU Data Protection Directive, protects personal information. This is information which refers individually to a specific individual or legal entity. As a matter of general principle, data protection provisions cover any form of collection and use of data, both online and offline. If any information other than the information which was laid down in the 2000 Ordinance governing Standard and Special Types of Data Applications is stored, registration with the Data Protection Commission must be procured. In addition, data security precautions must be complied with, and employees of data processors or collectors are required to comply with the data secrecy. Any transmission to and processing of data by third parties requires the consent of the person concerned, such consent to be given expressly, although a written form is not required.

This consent regarding the processing and making available of data to third parties is frequently part of the banks' general terms and conditions and is challenged by consumer protection organizations. Particular emphasis should be given to the fact that the consent clearly describes which data are processed and the person to whom they are to be transmitted.

According to the Data Protection Act, the person concerned must have access to this information, and be able to correct and delete such information.

Buying financial institutions

Rather than setting up a new bank, it is also possible to, instead, acquire an existing bank. Inactive companies with banking licences are often available, particularly by major banks who own these shell companies. These acquisitions should, of course, not be conducted without a certain degree of caution, as the company is acquired along with all its assets and particularly with all of its liabilities. This method usually does not save time either as opposed to an application for a new licence, because a change of ownership must also be approved by the Federal Ministry of Finance, and is treated like a licence application.

The acquisition of a new bank must be effected in compliance with merger control regulations and Austrian takeover law, if the target is a listed company.

In this context, one must distinguish between voluntary public offers, in which a controlling interest is not intended to be acquired, and mandatory public offers where a controlling interest is at stake. The takeover law also provides for anticipated mandatory takeover offers whose purpose is to obtain control. These latter cases are principally subject to the same regulations as mandatory offers, although there may be admissible conditions attached to them (eg achievement of a defined interest level).

The Austrian Takeover Act, among others, requires a public offer to be made to all shareholders upon the direct or indirect acquisition of a controlling stake in a company listed on the stock exchange (mandatory public offer). A controlling interest exists if a shareholder (or shareholders acting in concert) holds the majority of the voting rights, is entitled to appoint or dismiss the majority of the members of the administrative, management or supervisory body; or is entitled to exercise a controlling influence.

Further, rebuttable presumptions of control exist in case a shareholder holds (or shareholders acting in concert hold) at least 20% but not more than 50 % of the voting shares in the target company.

Once control in the target company is acquired, the acquiror has to make an offer to all other shareholders of the target company for their shares. The offer, inter alia, must provide for a cash consideration payable not later than ten trading days after the offer becomes binding. Exchange for other securities (eg shares of the offeror) may be offered only alternatively, and the price of the offer must at least equal the average price quoted for the shares of the target company during the six months preceding the change of control and cannot not be lower than 15% below the highest consideration for shares of the target company paid or promised by the offeror or any party acting in concert within the preceding 12 months.

In the HypoVereinsbank/Bank Austria merger a structure was found in which no mandatory public offer had to be made. The ruling of the Takeover Commission about this transaction constitutes a landmark decision to the Takeover Act to transactions not specifically contemplated by the Act. Binder Grösswang was adviser to HypoVereinsbank in this transaction. The ruling of the Commission is available at www.takeover.at.

The cross-border merger of HypoVereinsbank and Bank Austria involved as a first step a spin-off by Bank Austria of all its business and assets into a wholly-owned non-listed subsidiary (new Bank Austria), as a second step a share swap between Bank Austria and HypoVereinsbank of all the shares in new Bank Austria against HypoVereinsbank shares, so that HypoVereinsbank became the sole shareholder of new Bank Austria. Finally Bank Austria was merged into new Bank Austria as a result of which the HypoVereinsbank shares then held by Bank Austria were transferred to the Bank Austria shareholders, and the listed company, Bank Austria, ceased to exist while the former Bank Austria shareholders became HypoVereinsbank shareholders and HypoVereinsbank now holds all the shares of the non-listed new Bank Austria.

In the matter HypoVereinsbank/Bank Austria the Takeover Commission opined whether or not the Takeover Act would apply to the transaction notwithstanding that it did not involve the acquisition, by HypoVereinsbank, of shares or a controlling interest in Bank Austria, the Austrian listed entity.

The Takeover Commission confirmed that a transfer of control over a business (asset transaction) or a non-listed subsidiary of a target company, will not per se constitute a relevant change of control or otherwise be subject to the Takeover Act. Also, a merger of a target company will not per se involve a relevant change of control.

According to the Takeover Commission, the duty to make an offer however arises in such events, if the shareholders of the target company are, as a consequence of the transaction, "confronted with a new controlling shareholder".

Accepting that the several steps of HypoVereinsbank/Bank Austria transaction had to be seen as a single transaction for the purposes of the Act and that the transaction had the effect of a merger between HypoVereinsbank and Bank Austria (HypoVereinsbank being the surviving entity), the Takeover Commission looked at the post-transaction shareholder structure of HypoVereinsbank. According to the Takeover Commission, a duty to make an offer would not arise provided that there was no shareholder controlling the surviving entity, HypoVereinsbank, upon completion of the transaction.

The Takeover Commission indicated that it would in principle apply the "new controlling shareholder" test for the potential duty to make an offer also to transactions not having the form or effect of a merger. This could include transactions such as the transfer of control over a business (asset transaction) or a non-listed subsidiary of a target company.

A complete divestiture by a target company of its assets appears to be outside the ambit of the Takeover Act. While the Commission did not explicitely address this issue, arguably, a duty to make an offer should however never arise in such transactions, if the target company (and its shareholders) did not directly or indirectly retain an interest (shareholding) in the divested business or subsidiary (eg if the target company sold the same outright for cash). If however, a non-controlling interest (shareholding) in the business or subsidiary is retained by the target company, the issue, according to the Takeover Commission, is whether or not someone else acquires, as a consequence of the transaction, a controlling interest. In the affirmative, an offer has to be made.

The Commission did not have to opine on transactions by which only part of the assets or the business of the target company is transferred. In such cases the argument can be made that the target company remains in the position to meaningfully pursue its own business as before, so that such transactions are not subject to an analogous application of the Takeover Act, even if the target company retains a minority interest and is, in relation to the part of the assets or business so transferred "confronted with a new controlling shareholder". It remains, however, to be seen how the Takeover Commission would draw the line in such a case.

Further, the Takeover Commission indicated that it might always consider the application of the Takeover Act if the principle of equal treatment of all shareholders of the target company was at stake.

The ruling leaves it unclear how the Takeover Commission would have addressed the many also technical issues arising if it had opined in favour of the offer.

Generally, considering the legal uncertainties connected to the interpretation of the relatively new Takeover Act, the lack of specific published precedents and the severe consequences of a violation of the Act (including suspension of voting and other rights connected to the shareholdings), it may be prudent to obtain, in relation to a proposed transaction structure, a ruling from the Takeover Commission about the applicability of the Act. Such a non-binding ruling may, if necessary, relate to questions about abstract scenarios submitted to the Takeover Commission on a no-names basis and can normally be expected within approximately four weeks.

Competition regulations

Austrian merger control only applies if:

  • a concentration comes within the broad statutory definition of "concentrations";
  • reaches or exceeds certain turnover thresholds (no de minimis concentrations); and
  • is not subject to EC merger control (one-stop-shop principle) or any exemption clause.

A concentration is in particular: (i) the acquisition of an entire business or a major part thereof by another undertaking; (ii) the acquisition of shares of an undertaking by another undertaking if thereby an interest of either 25% or 50% is reached or exceeded; (iii) all transactions that confer upon one undertaking the power to exercise dominating influence over another undertaking; and (iv) concentrative joint ventures.

A pre-merger notification must be submitted to the Cartel Court provided that the following turnover thresholds are reached or exceeded:

  • aggregate world-wide turnover of at least ATS 4.2 billion ($263 million),
  • aggregate turnover in Austria of at least ATS 210 million; and
  • world-wide turnover of at least two undertakings involved of at least ATS 28 million each.

Specific turnover calculations apply with regard to banks. In place of turnover the sum of the following income items is used for credit institutions and other financial institutions: interest and similar income; income from securities (income from shares and other variable yield securities, participating interests and shares in affiliated undertakings); fees and commissions; net profit from financial transactions and other operating income.

A concentration meeting the above thresholds may not be implemented until cleared by the Cartel Court (pre-merger notification obligation with implementation prohibition). It may be prohibited if it is to be expected that a dominant position is created or strengthened without at the same time triggering superior pro-competitive effects or meeting other superior interests (balance clause).

The main authorities involved in cartel proceedings are the Cartel Court together with the Official Parties (namely the Social Partners and the Republic of Austria). The Cartel Court must upon application by the Official Parties and may also ex officio instigate "second-phase proceedings".

As to timing, merger clearance may in general be obtained within six weeks from filing. In case of second-phase proceedings the final decision may take several months from filing.

At present, a bill is under consideration that would change the competence of the involved authorities. It is planned to establish two separate bodies with the right to request the examination of concentrations, whereas the official bodies shall no longer have such authority. The role of the Cartel Court as the ruling authority is also under discussion.

Continuing bank supervision

Banks are required to comply with specific reporting requirements laid down in the Banking Act regarding accounting. In addition, banks must make comprehensive statistic reports to the Oesterreichische Nationalbank according to the ordinances adopted by the Ministry of Finance. These are mainly monthly and quarterly reports to ensure compliance with solvability and liquidity as well as regulations governing significant investments and participations. Furthermore, banks are obliged to report major loans to customers or groups of customers to Oesterreichische Nationalbank, ie loans, credit lines or promissory notes exceeding, in total, ATS 5 million. Exceptions apply to loans extended, inter alia, to political subdivisions.

The Banking Act also provides specifically for the disclosure of information to foreign banking supervisory authorities by the Federal Minister of Finance.

Financial statements of banks are audited by a bank auditor. If banks are organized as cooperatives, this audit may be carried out by an auditor who is appointed according to cooperative regulations. The bank auditors must notify the Federal Minister of Finance and Oesterreichische Nationalbank of any circumstance established in connection with their audit which may in their judgement result in a discontinuation of the banking business or the non-satisfaction of the bank's obligations, along with any violations of regulations relevant to banking supervision.

Disclosure requirements

A change in the bank's management does not require the prior consent of the Ministry of Finance. Nevertheless, it is customary for the new managers to introduce themselves to the competent authorities.

Some changes in a bank's ownership structure must be reported, others must be approved.

If interest thresholds of 20%, 33%, or 50% of the voting rights or of the capital are reached or exceeded, the particular change requires notification of the authorities, unless a bank is the acquiror in which case a permit is required. The Minister of Finance may prohibit the proposed participation within three months if the new owners are, in principle, unreliable or would obstruct supervision. Before he issues such a prohibition, the Federal Minister of Finance must inform the competent authorities of another EU member state if the potential acquirer is licensed in this member state or controls a credit institution in that state.

Special permits must be obtained from the Federal Minister of Finance for any merger or affiliation of credit institutions; whenever the thresholds of 10%, 20%, 33%, and 50% of the voting rights or of the capital of a credit institution are reached, exceeded or undercut and another credit institution directly or indirectly holds, acquires or divests these voting rights or the capital; for any change in a credit institution's legal form; for the setting-up of branches in a third country, or for any demerger of credit institutions.

When a bank becomes insolvent

A credit institution's assets may not be subject to judicial composition proceedings, although bankruptcy proceedings may be instituted. Credit institutions that are overindebted or insolvent may file an application with the court for an order for special receivership. This application may also be made by the Federal Minister of Finance through the Attorney General's office. If such an order is issued, the credit institution's management will be monitored. An order for special receivership must be publicized. As soon as special receivership is effective, claims against the credit institutions are deferred. Special receivership ends one year after an order for special receivership was issued, unless this time limit is extended by the Federal Minister of Justice in agreement with the Federal Minister of Finance on application of the court. As long as a bank is under special receivership, a petition for bankruptcy may be filed only by the special receiver.

Credit institutions that accept deposits that have to be secured or provide securities services that have to be secured must be members of the deposit guarantee scheme within their respective trade organization. Should any of its members become bankrupt or subject to an order for special receivership, these institutions ensure that deposits of up to euro20,000 or its equivalent in foreign currency be paid to each depositor within 2 months upon his request and following his identification. The deposit guarantee scheme is obliged to accept as members all credit institutions holding a licence to accept deposits to be secured and to provide securities services to be secured.

Capital requirement and banking secrecy

Capital requirements in Austria are based on the capital adequacy model currently applicable in Europe (Basle I). According to this model, the banks have to hold 8,5% own funds, depending on the risk category of their assets, which may range from 0% to 100%. Aside from paid up share capital, own funds include unappropriated reserves, certain hidden reserves and instruments similar to own funds in a certain proportion to the share capital (supplementary capital, participation capital, subordinate capital).

In the course of the discussions surrounding the new capital adequacy requirements based on the Basle II proposal, a new system for the satisfaction of capital adequacy requirements will be introduced within the coming years in Austria as well.

If the balance sheet items of a customer or a group of affiliated customers (including off balance sheet financing transactions) exceed 10% of the credit institution's eligible own funds, these are referred to as large exposures. Certain items secured by particular securities or covered by liabilities accepted by political subdivisions may be deducted. In no case may large exposures exceed 25 % of the credit institution's eligible own funds. All large exposures together may not exceed eight times the credit institution's eligible own funds. All large exposures must involve an examination of credit standing and require the consent of the supervisory board of the bank.

Pursuant to § 38 Banking Act, credit institutions as well as other persons acting for credit institutions may not disclose or make use of secrets which have been entrusted or made accessible to them solely due to the business relationships with customers (banking secrecy). The Banking Act also governs cases under which the banking secrecy need not be complied with (eg in connection with initiated criminal proceedings, in case of express and written consent or in case of generally worded information concerning the economic condition of a company, as is customary in the banking business, unless such company expressly objects to such information being disclosed).


Binder Grösswang Rechtsanwälte

Sterngasse 13
Vienna, A-1010

Tel: +43 1 534 800
Fax: +43 1 534 808
www.bgnet.at