IMF Executive Board Concludes Austria’s 2019 Financial System Stability Assessment
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IMF Executive Board Concludes Austria’s 2019 Financial System Stability Assessment

IMF Executive Board Concludes Austria’s 2019 Financial System Stability Assessment

Image by gsibergerin from Pixabay

On January 24, 2020, the Executive Board of the International Monetary Fund (IMF) discussed the Financial System Stability Assessment (FSSA) of Austria.[1]

Growth in Austria has been strong, but the outlook has moderated. Structural financial system characteristics include a large and tiered banking system, complex ownership structures and financial interlinkages, and a focus on central, eastern, and southeastern Europe (CESEE) markets.

The Austrian authorities have proactively strengthened the financial stability framework since the previous Financial Sector Assessment Program (FSAP). The macroprudential policy framework has been enhanced, tools targeted at systemic risk buildup have been activated, and minimum standards to contain risks in CESEE countries and foreign currency lending have been issued. The regulatory framework has been amended to address some of the 2013 FSAP recommendations, including enhancing the early intervention framework. Crisis management and resolution frameworks have been expanded and ex ante-funded deposit guarantee schemes (DGS) were restructured in 2019, in line with one of the key 2013 FSAP recommendations. Significant progress has been made in aligning Austria’s anti-money-laundering/combating the financing of terrorism (AML/CFT) framework with the Financial Action Task Force (FATF) standards.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the findings and recommendations of the 2019 FSSA. They welcomed the significant progress that the Austrian authorities have made in proactively addressing financial risks since the 2013 FSAP. The macroprudential policy framework has been strengthened and the banks are, in aggregate, well-capitalized and resilient to severe macro-financial shocks. Important steps have also been taken to further align the AML/CFT framework with FATF standards.

Directors noted that while a robust regulatory framework and prudential policy actions have lowered financial stability risks, challenges include interconnectedness, data and regulatory gaps, resource constraints, exposure to cross-border and money-laundering risks, and recent developments in the real estate sector. The solvency of insurance firms is high, but the sector suffers from low growth, a low-interest-rate environment, and future profitability risk.

To maintain the stability and efficiency of the financial system, Directors called for enhanced monitoring of intra-group transactions and spillover risks. Accurate calibration of prudential buffers and enhancing data collection would help in the timely identification of emerging risks, in particular from real estate and nonfinancial corporate sectors. The granularity of CESEE data will also be important.

Directors encouraged the authorities to further strengthen the related-party risk and major acquisitions framework, as well as the governance of financial institutions, the supervision of AML/CFT risk, and the institutional framework for financial sector oversight. Directors underscored the importance of ensuring that the size of prudential buffers is appropriate to mitigate financial stability risks and that adequate staffing and resources are available for supervision, resolution, financial stability monitoring, and stress testing. They noted that further regulatory actions may need to be taken if mortgage markets remain buoyant. 

Directors underscored the need to continue enhancing the resolution framework for banks and insurance companies, in particular ensuring that resolution strategies are effective to contain spillover risks and that efficient information sharing and cross-border cooperation arrangements are in place. They noted the authorities’ plan to abandon the institutional reforms in the banking oversight. Close collaboration between national and European bodies in the context of the resolution framework will also be helpful. Directors noted that the scope of the annual contingency testing program should be expanded to include amplification channels and encouraged the authorities to ensure funding in resolution.

Footnotes:

[1] The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country’s financial sector. FSAPs provide input for Article IV consultations and thus enhance Fund surveillance. FSAPs are mandatory for the 29 jurisdictions with systemically important financial sectors and otherwise conducted upon request from member countries. The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA), which is discussed by the IMF Executive Board. In cases where the FSSA is discussed separately from the Article IV consultation, at the conclusion of the discussion, the Chairperson of the Board summarizes the views of Executive Directors and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in a summing up can be found here: LINK

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings-up can be found here: LINK.

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