# C_2006212EN.01001701.xml

| 2.9.2006 | EN | Official Journal of the European Union | C 212/17 |
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2.9.2006

EN

Official Journal of the European Union

C 212/17

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Action brought on 20 June 2006 — Commission of the European Communities v Republic of Austria

(Case C-270/06)

(2006/C 212/29)

Language of the case: German

Parties

Applicant: Commission of the European Communities (represented by: H. Støvlbæk, Agent, B.Wägenbaur, lawyer)

Applicant:

Defendant: Republic of Austria

Defendant:

Form of order sought

| 1. | Declare, under Article 226(1) of the Treaty establishing the European Communities, that by requiring certain credit institutions which are affiliated to a central institution to hold with their central institution (in accordance with conditions laid down by the central institution) liquidity reserves corresponding to a certain percentage of their deposit funds and preventing them from investing their liquid assets with other European financial institutions, the Republic of Austria has failed to fulfil its obligations under Article 56(1) EC. |
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1.

Declare, under Article 226(1) of the Treaty establishing the European Communities, that by requiring certain credit institutions which are affiliated to a central institution to hold with their central institution (in accordance with conditions laid down by the central institution) liquidity reserves corresponding to a certain percentage of their deposit funds and preventing them from investing their liquid assets with other European financial institutions, the Republic of Austria has failed to fulfil its obligations under Article 56(1) EC.

| 2. | Order the defendant to pay the costs. |
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2.

Order the defendant to pay the costs.

Pleas in law and main arguments

Article 56(1) EC prohibits all national rules which restrict the movement of capital between Member States and between Member States and third countries. This prohibition goes beyond removing inequalities of treatment of participants in the financial markets on the basis of their nationality and includes generally every restriction which makes the exercise of that fundamental freedom less attractive. According to the case-law of the Court of Justice, measures taken by a Member State which are liable to dissuade its residents from raising loans or making investments in other Member States constitute restrictions on the movement of capital.

The Commission is of the view that the provision of the Austrian federal banking law requiring certain credit institutions which are affiliated to a central institution to keep a part of their liquidity reserves with their central institution constitutes a restriction on the free movement of capital. That legal obligation prevents prevents primary banks from investing with other European credit institutions a significant part of their liquid assets, corresponding to the obligatory deposit, and from achieving, by way of a cross-border transfer to another Member State, higher rates of return than those provided by the central institution.

The provision at issue of the Austrian federal banking law cannot be justified on the basis of the grounds explicitly mentioned in Article 58 EC, or on grounds of consumer protection or by other overriding reasons relating to the public interest.

According to the Commission the obligatory deposit at issue laid down in the law is not necessary for the purpose of consumer protection. First statutory rules to safeguard liquidity, which apply to all banks, already exist in Austria, and secondly, there are less restrictive means for ensuring sufficient liquidity, which do not impede or impede less the free movement of capital. The existing rule is even counter-productive in terms of consumer protection, since it prevents primary banks from investing their liquidity reserve abroad and possibly more profitably, in the interest of their customers. Furthermore there is no evidence at all to indicate that the insolvency of individual primary banks would necessarily trigger a chain reaction and bring about a run on the savings deposits of other primary banks in the sector. This catastrophic scenario is not convincing, as comparable systems in other Member States manage without compulsory statutory deposits, and have operated stably for many decades without this having led to a series of collapses of banks.

Since the present statutory obligation on the relevant credit institutions is equally unnecessary for the protection of the integrity and the good reputation of the Austrian financial sector and for the achievement of effective supervision of financial institutions, it constitutes a disproportionate restriction on the free movement of capital.

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