ANNEX Observance of Financial Sector Standards and Codes—Summary Assessments
The annex contains summary assessments of international standards and codes relevant for the financial sector. The assessment has helped to identify the extent to which the supervisory and regulatory framework is adequate to address the potential risks in the financial system.
The following detailed assessments of financial sector standards were undertaken: the Basel Core Principles for Effective Banking Supervision (BCP) by Messrs. Michael Andrews (IMF-MFD Consultant) and Göran Lind (Sveriges Riksbank); the IAIS Insurance Core Principles assessed by Mr. Rodney Lester (insurance supervision expert, World Bank) on the basis of the new IAIS Methodology approved in October 2003; the IOSCO Objectives and Principles of Securities Regulation assessed by Ms. Susanne Bergsträsser (securities expert, German Financial Supervisory Authority); and the FATF 40 Recommendations for Anti-Money Laundering and 8 Special Recommendations on Combating the Financing of Terrorism (FATF 40+8 Recommendations) by Messrs. Kiyotaka Sasaki (IMF, MFD), Mr. Peter Csonka (IMF, LEG), and Kent Madstedt (Chief District Prosecutor, Economic Crimes Bureau, Sweden).
Austria enjoys a high standard of supervision based on strong institutions and a comprehensive legal framework. The consolidation of supervision in the new Financial Market Authority (FMA) in 2002 has taken place smoothly. The FMA is a young organization, and faces the challenge of building institutional capacity with the benefit of not being bound by a pre-existing structure.
The savings bank pillar performs slightly worse than the other pillars. This can be explained by the rigid cost structure for many of these banks and their lower spreads, both of which reflect a focus on service provision. Joint stock banks are the most profitable on average, possibly reflecting stronger pressures to perform.
Foreign ownership of the Austrian banking sector has also grown over recent years, with foreign (mainly EU) controlled bank subsidiaries and branches now having a total market share of about 25 percent. Most of this is accounted for by the German bank Hypo Vereinsbank which in 2001 took control of Bank Austria (which subsequently merged to form Bank Austria Creditanstalt), the biggest bank in Austria.
See, for example, Financial Stability Report 4, Austrian National Bank, Vienna, 2002.
Repayment vehicles can be associated with mortgage loans where the principal is repaid in a single payment on maturity of the loan, rather than by instalments over the term of the loan. In some cases of such loans, the borrowers make regular payments into an investment fund or other repayment vehicle during the term of the loan so as to have generate funds to repay some or all of the loan on maturity. The use of such vehicles gives rise to risks for the borrower depending on inter alia the kinds of investments made with the funds invested in them, and the assumed rates of return at the outset. If the actual rate of return turns out to be lower than was assumed, the amount available on maturity will be lower than expected.
Due to the large number of banks in Austria, only the results related to the sample of 15 systemically important banks are presented in Table 5. Confidentiality considerations meant that the actual testing computations were conducted by a working group of OeNB staff with FMA participation. The FSAP team designed the shocks used in the stress tests in consultation with the working group. All tests were run on a bank-by-bank basis, so as to compute minimum and maximum impact statistics, however the results were reviewed with the FSAP team on a summary basis, so that no individual information was revealed. All tests were conducted initially on the basis of end-September 2003 data and subsequently updated to end-December 2003.
Information on the creation and legal structure of the FMA is provided in SM/02/211, p. 16.
At the time the FSAP was undertaken, only the Vienna Stock Exchange met this criterion. From May 1, 2004, however, exchanges in other countries that joined the EU on that date also qualified, but it is not clear how attractive they will be compared with a local investment in the Vienna Stock Exchange.
Michael Andrews (IMF-MFD Consultant) and Göran Lind (Sveriges Riksbank).
The AML/CFT team consisted of Mr. Abdessatar Ben Ouanes (Mission Chief, MFD), Mr. Peter Csonka (LEG), Mr. Kiyotaka Sasaki (MFD), as well as the independent AML/CFT expert, Mr. Kent Madstedt (Chief District Prosecutor, Economic Crimes Bureau, Sweden).