Commission decision

of 11 June 2002

relating to a proceeding under Article 81 of the EC Treaty

(Case COMP/36.571/D-1: Austrian banks - "Lombard Club")

(notified under document number C(2002) 2091)

(Only the German text is authentic)

(2004/138/EC)

CONTENTS

>TABLE>

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation No 17 of 6 February 1962 first Regulation implementing Articles 85 and 86 of the Treaty(1), as last amended by Regulation (EC) No 1/2003(2) and in particular Articles 3 and 15 thereof,

Having regard to the Commission decision of 11 September 1999 to initiate proceedings in this case,

Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission in accordance with Article 19(1) of Regulation No 17 and with Commission Regulation (EC) No 2842/98 of 22 December 1998 on the hearing of parties in certain proceedings under Articles 85 and 86 of the EC Treaty(3),

Having regard to the final report of the Hearing Officer in this case(4),

After consulting the Advisory Committee on Restrictive Practices and Dominant Positions,

Whereas:

1. INTRODUCTION

(1) There was in the past in Austria a long tradition of agreements, mainly about interest rates and charges/fees, among Austrian banks, based well into the 1980s in some measure on statute law(5). Over the years the banks had created a close network of committees covering every conceivable subject within which, up until the unannounced investigation by the Commission in June 1998, they regularly (every fourth working day on average) coordinated their conduct with respect to every essential factor of competition. Being aware of the relevance of these agreements from an antitrust point of view, they tried (largely in vain as it turned out), through a mixture of evasiveness, deception and the destruction of records, to cover up or eradicate all traces of their meetings.

(2) In establishing the facts, the Commission was able to rely on a large number of seised original documents dating from the relevant period such as minutes of meetings, memoranda, records of telephone conversations, correspondence, etc. The express object, and profound effect, of these agreements was to restrict competition. This constitutes a clear, unequivocal infringement of Article 81 of the EC Treaty, which must be punished by a fine.

(3) The structure of this Decision is as follows: by way of introduction, a few features of the Austrian banking market which are essential to an understanding of this case are described (section 2). This is followed by a brief description of the most important banks and bank groupings involved, being addressees of this Decision, and of the products/services covered by the cartel (section 3). After a brief review of the main procedural steps (section 4), the background to and organisational structure, functioning and object of the rounds of talks/committees in the Lombard network are discussed (section 5). There follows a chronological account of the main cartel meetings between 1994 and 1998 (sections 6 to 11). A separate section is devoted to selected special committees (section 12). The main arguments put forward by the undertakings are then discussed. The legal assessment of the facts (section 14), some reflections on procedural issues (section 15) and a discussion of the necessary penalties (section 16) are to be found at the end of the Decision.

2. THE AUSTRIAN BANKING MARKET

(4) The very high level of public ownership in Austrian banks until recent times may help explain why the pursuit of profit took a back seat to the quest for increased turnover and higher market share. On their own admission, the responsible banking executives were not able to make calculations based on business economics(6). In the consumer lending sphere in particular this led, against a background of stagnating demand for credit, to oversupply(7) and hence to declining interest margins for the banks.

(5) Competition which leads to declining margins, to the point where prices fall below average costs, is normally considered by the undertakings concerned to be "destructive". In such circumstances the undertakings are faced basically with two alternatives. Either the steady decline in earnings leads to a shakeout (exit from the market or capacity reduction as a result of a merger) or the various players on the market try to restrict, as far as possible, the competition induced by the oversupply and thus to slow down or even stop the collapse in prices. The upshot is excessive prices and the artificial maintenance of inefficient market structures.

(6) The Austrian banks opted, at least in part, for the second alternative. Since, owing to the, in the banks' view, "uncontrollable risk", the possible scenario of a shakeout was not only regarded by the banks as a suitable starting point for business initiatives but also aroused "fear"(8), the banks strove to achieve "disciplined" and "orderly" competition brought about by agreement(9). Cartel agreements proved to be a welcome means by which to combat so-called "destructive, cut-throat competition", or free competition, as it might simply be termed(10). Episodes of more or less unrestricted competition used, however, to be described by the banks as "hyperactivity". Charges were seen in this context, not so much as a factor of competition, but more as "a joint earnings opportunity", to the detriment of customers(11). In fact, the Austrian banks' endeavours to achieve improvements in their margins by means of coordinated action, i.e. jointly at the expense of the consumer instead of individually at the expense of competitors, run like a leitmotif through this investigation. One bank itself admits that the cartel had the effect of preventing the necessary shakeout(12).

(7) Because of the extensive standardisation of products, the publication ("posting at the counter") of interest rates, and regular price comparisons by the media and consumer bodies, the Austrian banking market is on the whole highly transparent. In order to increase this transparency still further, to be better able to monitor compliance with the cartel agreements and to minimise the effectiveness of any secret competition, e.g. through deviations from published interest rates, Austrian banks regularly carried out extensive checks, "competition-monitoring exercises", on their competitors and reached agreement on "ongoing direct contact in respect of departures" from agreements "which are presumed/alleged to exist by customers/supposedly established"(13). "Should offers come to light which are at variance with the (agreed) principles", one of the cartel members assumed responsibility for "coordination and clarification of the facts"(14). That such checks were the rule can be seen from the minutes of a cartel meeting in July 1994, according to which the Bank Austria representative proposed that "competition-monitoring exercises be dispensed with in August"(15). In many cases, though, the temptation for the banks concerned to undercut the agreed rates and thereby increase their market share proved too great.

3. UNDERTAKINGS AND PRODUCTS CONCERNED

(8) Almost all credit institutions from every major segment(16) took part in the conduct at issue. After the long-overdue shakeout, four bank groupings are now in a strong position on the Austrian banking market: HypoVereinsbank-owned Bank Austria, the savings bank grouping together with Erste Bank, the agricultural credit cooperative grouping together with Raiffeisen Zentralbank, and Bank für Arbeit und Wirtschaft/Postsparkasse. Some distance behind is the credit union grouping together with ÖVAG.

(9) This Decision is addressed to the following credit institutions(17):

a) Bank Austria Aktiengesellschaft (hereinafter called BA)

Following BA's merger with Creditanstalt AG (hereinafter called CA)(18) on 23 September 1998, BA is now the largest bank grouping in Austria. As a result of an assets merger in early 2001, Bayerische Hypo-Vereinsbank AG (hereinafter called HVB) acquired sole control of the entire BA grouping(19). The BA grouping's market share comes to approximately 25 %. In the whole of Austria the grouping has some 470 branches and employs around 13000 people;

b) Erste Bank der österreichischen Sparkassen AG (hereinafter called Erste)

Since it merged with GiroCredit Bank Aktiengesellschaft der Sparkassen on 4 October 1997(20), Erste has been the lead institution in the savings bank grouping, which consists of some 70 savings banks(21), and the second-largest banking group in Austria. The market share of the savings bank grouping together with Erste comes to approximately 30 %(22). The grouping has some 1500 branches in Austria and employs around 24000 people;

c) Raiffeisen Zentralbank Österreich AG (hereinafter called RZB)

RZB is the lead institution of the Austrian agricultural credit cooperative grouping. This is three-tiered in structure(23) and has over 2350 branches. The agricultural credit cooperative grouping has a market share of approximately 22 % and employs about 20000 people. Besides its function as representative of the agricultural credit cooperative grouping, RZB engages in banking business itself, focusing on foreign business and looking after large customers(24);

d) Bank für Arbeit und Wirtschaft Aktiengesellschaft (hereinafter called BAWAG)

Since December 2000 BAWAG has been the principal shareholder in Österreichische Postsparkasse Aktiengesellschaft (PSK)(25). As a result of the extensive organisational convergence between the two institutions, the BAWAG-PSK grouping has more than 2000 branches throughout Austria and a market share of approximately 10 %, some 5 % of which is accounted for by BAWAG and 5 % by PSK(26).

e) Österreichische Postsparkasse Aktiengesellschaft (hereinafter called PSK).

PSK is (following a merger with effect from 1 October 1998) legal successor to Bank der Österreichischen Postsparkasse Aktiengesellschaft (hereinafter called PSK-B);

f) Österreichische Volksbanken AG (hereinafter called ÖVAG)

ÖVAG is the lead institution in the two-tier credit union sector, which consists of approximately 60 independent credit unions at the primary level. The credit unions cooperate closely in important areas such as organisation and marketing and are in turn majority shareholders of ÖVAG. The market share of the credit union grouping comes to approximately 7 %(27). The grouping has some 600 branches in Austria and employs about 5000 people;

g) NÖ Landesbank-Hypothekenbank AG (hereinafter called NÖ Hypo)(28)

Since 1 January 1997 NÖ Hypo has been a member of the ÖVAG group(29). It is active primarily in Vienna and Lower Austria. Its market share there is reckoned not to exceed 2 %(30).

h) Raiffeisenlandesbank Niederösterreich-Wien reg Gen mbH (hereinafter called RLB)

In 1997 (immediately after the transfer to it of the banking business of Raiffeisenbank Wien reg Gen mbH) Raiffeisenbank Wien AG (RBW) was merged with, and re-registered as, its principal shareholder RLB(31). The sphere of activity of RLB/RBW is confined to the federal capital Vienna, where it has a market share of about 5 %.

(10) The abovementioned banks or bank groupings offer in the areas of retail banking and corporate banking(32) all the products and services which are typically provided by universal banks. As will be shown in the sections that follow, the Austrian banking cartel related to the whole range of these products and services, from savings and lending rates(33) to charges and fees, and covered further factors of competition such as advertising, contact with media/consumer representatives and calculation bases.

(11) There has been a sharp increase in recent years in the volume of loans granted to manufacturing and services enterprises for investment purposes (in 1997 it grew by 14 %). This is attributable among other things to the increased export activity of this category of borrowers, whether they be large or small/medium-sized enterprises.

(12) In 1999 deposits by foreign non-banks with Austrian credit institutions totalled some EUR 26 billion and loans granted by Austrian credit institutions to foreign non-banks amounted to approximately EUR 36 billion. In February 2002 Austrian credit institutions maintained some 380000 savings deposit accounts on behalf of foreign customers(34).

4. THE PROCEEDING

4.1. The cause

(13) In April 1997 (...), a member of the management board of an Austrian bank committed suicide. He left a note which he sent, along with a number of enclosures, to the Public Prosecutor's office and to opposition parties. Among the enclosures was a list of 13 measures to improve banks' earnings on which "Lombard 8.5." had been written by hand.

(14) On 6 May 1997 the Commission became aware of the existence of this document, clearly the agenda for, or record of, a meeting held on 8 May 1996(35), and prepared the ground for an investigation into suspected competition-restricting agreements and/or concerted practices. On 30 June 1997 the Freedom Party lodged a complaint, invoking Article 3 of Regulation No 17, against eight Austrian credit institutions for suspected competition-restricting agreements.

4.2. The inspections

(15) On 23 and 24 June 1998 Commission officials, accompanied by officials from the Federal Austrian Ministry for Economic Affairs, carried out, on the basis of Commission decisions of 18 June 1998, unannounced inspections on the premises of, among others, BA, CA, Erste, RZB, PSK and BAWAG.

(16) Since PSK opposed the inspection, officials of the Federal Ministry for Economic Affairs, armed with an order of the President of the Cartel Court, carried out a search of the bank's premises pursuant to Article 142(4) of the Austrian Code of Criminal Procedure, read in conjunction with Article 4(5) of the EU Competition Act (BGBl 627/94 and BGBl 175/1995).

(17) In the course of the inspections and search, the officials of the Commission and of the Federal Ministry for Economic Affairs found extensive written evidence (lists of participants, records of meetings, memoranda, internal notes, etc.) which confirmed the suspicion about the existence of prohibited agreements and/or concerted practices.

4.3. Requests for information

(18) On 21 September 1998 the Commission sent to most of the credit institutions referred to at (15) and to other credit institutions and associations requests for information pursuant to Article 11 of Regulation No 17. The addressees were asked therein to furnish the dates of, and names of participants in, the committee meetings(36) and to submit the documents that were available to them.

4.4. The undertakings' reaction

(19) After receiving the requests for information, the largest banks concerned requested a meeting with the Commission's Director-General for Competition and offered, at that meeting, their "cooperation" in establishing the facts. This "cooperation" was such that the banks, instead of answering the requests for information, would state the facts "voluntarily" and waive their right to a hearing. In return, the Directorate-General for Competition would not insist on the requests for information being answered and would impose only a "moderate" fine. The Director-General welcomed in principle the banks' willingness to cooperate, but rejected the idea of a deal between the banks and the Commission, pointing out that the proceeding would run its course like any other. The requests for information would therefore have to be answered on time and in full.

(20) With regard to the "voluntary" statement of the facts as proposed by the banks, the Director-General said that the banks naturally remained at liberty, independently of the timely and complete answering of the Commission's requests for information, to communicate facts which were not covered by those requests. The Commission would consider in each individual case whether such communications of facts were involved and, if this was indeed the case, whether those facts were of such a nature as to make a substantial contribution to the establishment of an infringement and hence could form the subject matter of possible fine-reducing "cooperation".

(21) All the addressees subsequently answered the requests for information. Some took the view in this connection, regarding the major part of the request for information addressed to them, that they were under no obligation to reply and that they were therefore submitting the relevant documents and answering the relevant questions voluntarily as part of the abovementioned "cooperation". The Commission rejected this interpretation of the law as being incorrect.

(22) Soon afterwards the largest banks concerned transmitted to the Commission a document described as a "joint exposition of the facts" in which they set out at length the historical background to the cartel and summarised briefly and assessed from their point of view the content of the individual committee meetings as apparent from the documents which had been seized or the transmission of which had been requested. At the same time they again submitted the documents which had been seized by the Commission and those the transmission of which had been requested pursuant to Article 11 of Regulation No 17. In order that it might assess any added value that these documents submitted with the exposition of the facts might represent for the ongoing investigation, the Commission asked the banks to indicate whether any of these documents were not yet known to the Commission, and if so which. The banks, however, considered this to be neither feasible nor necessary.

(23) On 13 September 1999, the Commission transmitted to the banks concerned the statement of objections of 11 September 1999. After access had been granted to the file and the banks had made written submissions, a hearing was held on 18 and 19 January 2000. On 22 November 2000 the Commission transmitted to the banks concerned the supplementary statement of objections of 21 November 2000.

(24) On 5 February 2001 all the banks concerned transmitted to the Commission a document described as a "supplementary exposition of the facts" (together with a number of further documents) in which they set out from their own point of view the facts portrayed in the supplementary statement of objections. After access had been granted to the file and the banks had made written submissions, a second hearing was held on 27 February 2001.

5. BACKGROUND TO, AND CREATION, FUNCTIONING AND OBJECT OF, THE "LOMBARD" NETWORK

(25) Before giving a chronological account of cartel meetings during the years 1994 to 1998 (see section 7), the historical background to, and the organisation, functioning and object of, the Lombard network will be briefly described here.

(26) The Commission's knowledge is directly based on documents dating from the relevant period, records of meetings, internal memos, correspondence, etc., which were either seized in the course of the unannounced inspections or submitted in response to requests for information(37).

5.1. Background

(27) The 1979 Austrian Banking Act provided for the possibility for specialist banking associations or for banks themselves to conclude agreements on the interest rate for savings deposits terminable both at three months' notice (base rate agreement(38)) and at a freely agreed period of notice (credit interest agreement(39)) and on advertising (competition agreement(40)). The generally poor profitability of Austrian banks in the early 1980s elicited a reaction from the legislator in the form of an amendment to the 1986 Banking Act and from banks themselves in the form of the establishment of a target-rate cartel for lending and deposit rates (regulative agreements, 1985). Several committees, Lending Rates Committee, Deposit Rates Committee, Minilombard Committee, came into being at that time.

(28) In the summer of 1989 the regulative agreements were annulled(41). Since, however, the credit institutions found it difficult to set their rates meaningfully without recourse to binding agreements, they continued to conclude agreements on lending and deposit rates within the network.

(29) The relevance of such agreements from an antitrust point of view was already known at that time.

(30) On 1 February 1991 the Association of Austrian Chambers of Labour lodged an application with the Restrictive Practices Court, asking it to require a total of nine banks to notify, as a cartel, the introduction or raising by them of current account charges. In the Association's opinion, the uniform introduction or raising of such charges on 1 January 1991 could be attributed only to a cartel agreement.

(31) The Court having found for the Association, the banks concerned lodged an appeal against its decision before the Higher Restrictive Practices Court, which described the agreement on the joint action or the coordination of that action in respect of the introduction or raising of the charges as conduct which served only "(...) to restrict competition for customers interested in holding or opening current accounts"(42).

(32) In view of Austria's impending accession to the European Economic Area (EEA), increasing attention was being paid to European antitrust law. In September 1992, for instance, an article, entitled "Bankenkartelle im EWR", in the leading banking periodical explained the effects of Austrian accession to the European Economic Area. After a detailed description of the relevant case-law of the European Court of Justice and of the decision-making practice of the Commission, the author concludes that "the Austrian banking industry (would) be well advised to consider the compatibility with the EEA of the various agreements, decisions, circulars, recommendations (...). Such agreements will therefore have to be amended in advance of accession to the EEA or they will have to be dispensed with altogether"(43).

(33) Again in 1992 there appeared in the omnibus volume Banken im Binnenmarkt, edited by a leading academic, an article dealing in depth with the subject of "EEC antitrust law and banks". In this it was pointed out that the inter-State clause is "normally interpreted very broadly" by the Community institutions and is applied "at all events where" a cartel "covers the whole territory of a Member State". The author came to the conclusion that agreements on rates, should there still be any in force following the expiry of the regulative agreements, were inadmissible under antitrust law in both the European Economic Area and the Community. An exempting of such agreements by the Commission was "altogether unrealistic"(44).

(34) When, in September 1993, the media learned of a strategy paper concerning uniform calculation bases and minimum interest rates drawn up jointly by BA, CA, Erste, RZB, ÖVAG, PSK and BAWAG (see recital 74), a representative of the Vienna Chamber of Labour publicly accused the banks of having concluded a cartel agreement. The banks denied the allegation, stating that there had been no board resolutions to that effect. In a letter to CA dated 28 March 1993, Bank für Tirol und Vorarlberg expressed the view that, given "the unexpected publication of the paper under the caption 'concerted practice' ..., further thought (would) have to be given to the specific form any action (would) take"(45).

(35) Despite the manifest incompatibility of their agreements with Community antitrust law, one only has to look at the articles in publications on the subject mentioned at recitals 32 and 33, the banks were unimpressed by the imminent applicability of the Community competition rules. As regards the competition agreement, for example, which restricted the advertising of interest rates and was accordingly described in one of the abovementioned articles as "doubtless subject in its entirety to the EEC cartel ban", it was proposed in December 1993 that these agreements should be maintained even after 1 January 1994. In the course of a conversation at the end of December 1993 between the (representatives) of BA, CA and RZB, it transpired that CA, RZB and PSK wished to maintain the agreements, while BAWAG did not. BA's (representative) accordingly wrote in his record of the meeting that "talks had to be held with (...) (BAWAG's representative) as soon as possible"(46). In fact, avoidance of advertising interest rates was a regular feature of the agreements subsequently concluded between the Austrian banks.

(36) Austria acceded to the European Economic Area on 1 January 1994. The 1994 Banking Act entered into force on the same day, removing the last remaining statutory bases for any coordination between the credit institutions. On 1 January 1995 Austria became a member of the European Union.

(37) But the banks did not terminate their agreements despite the fact that they manifestly infringed EEA/EC antitrust law, continuing instead with the numerous existing rounds of talks even after 1 January 1994. The Lombard network thus remained in existence and served to an unlimited extent as a vehicle for the many arrangements and agreements between the participating banks. The latter took the view that cartel agreements "had always been part"(47) of banking and they therefore did not in the least intend to change this now simply because of the applicability of European antitrust law.

(38) The Austrian public was still suspicious, and in connection with changes to rates and charges, accusations of "cartel-like pricing policies"(48) and of "manifest agreements"(49) were repeatedly being made in public and the question was raised of the existence of "interest rate agreements"(50).

(39) Numerous documents show in fact that the banks were actually aware of the relevance of their agreements from an antitrust point of view.

(40) During a committee meeting in October 1994 about the increasing of transfer charges, "reference was made to the antitrust aspects (in business with customers)" and it was stated that "in the EU a fundamentally different (from the Austrian) legal interpretation of the issue prevailed. The legal departments of the various institutions ought to look into this EU issue"(51).

(41) During talks in November 1994 about charges for cross-border payment transactions, it was stated that "the question whether the banks, in setting an interbank rate, were infringing the Restrictive Practices Act could not be answered immediately"(52).

(42) During talks in March 1995 it was stated, in connection with the conduct of such rounds of talks, that "the possible consequences of EU antitrust law (would) have to be examined in due course"(53).

(43) During talks in May 1995, again on the subject of price coordination between banks, a report (clearly an internal GiroCredit document) was discussed which examined the question "whether the regular discussions in the Cross-border Transactions Committee, during which interbank pricing was coordinated between Austrian banks, were questionable from an antitrust point of view". The report concludes that "a restriction of competition may also be seen under EU law in the agreeing of interbank prices". This could "result in the initiation of investigation proceedings by the European Commission and the imposition of heavy fines"(54).

(44) On 24 May 1996 a "bank management board member who wishes to remain anonymous" confirmed in a statement to Austria Presse Agentur that there was "a desire in banking circles for definite agreements", but admitted that the interest rate agreements common in the 1980s (see recital 27) were now no longer possible "for reasons of antitrust law"(55). The board member in question omitted to mention, though, that these inadmissible agreements still remained fully in force.

(45) During talks in October 1996 the participants came to conclusion that none of the variations on the theme with which they were concerned there "provided a solution to the antitrust problem"(56).

(46) The awareness of the antitrust problem to which their agreements gave rise finally induced the institutions involved to concern themselves with taking practical precautionary measures.

(47) During talks in November 1997 one participant suggested that, as a precaution, in future "no more minutes should be kept of such meetings". The legal department of one institution was consulted on the matter. The down-to-earth recommendation of the lawyers consulted could not have been clearer: "Destruction of all existing records"(57).

(48) Further proposals to camouflage the agreements were the "renaming (e.g. market observations)"(58) of internal memoranda on the subject and their return to their author for "subsequent destruction"(59). Records and minutes were now marked "Strictly confidential"(60).

(49) During talks in May 1998 a participant again mentioned that his attention had been drawn by his institution's legal department "to the problem of minutes ... in the light of competition reservations". "Therefore, no minutes of these talks (would) be kept"(61).

(50) In a radio interview in February 2000, (a representative) of one of the banks concerned admitted that the Austrian banks would "have to put an end" to their agreements. Because they had not done so, however, "we shall have to pay the price"(62).

5.2. The individual committees, their relationship with one another and the role of the lead institutions

(51) The agreements were comprehensive as regards their contents, highly institutionalised and closely interconnected, and covered the entire country, "down to the smallest village", as one institution aptly put it(63). For every banking product there was a separate committee on which the competent employee at the second or third level of management sat. In practice, however, this separation as regards contents was not strictly adhered to. Sometimes, substantively related topics which were covered by more than one committee were dealt with in one and the same committee. The individual committees were part of an organisational whole.

1) Lombard Club, specialist committees, special committees and regional committees(64)

a) Each month (apart from the holiday month of August) [senior representatives] of the largest Austrian banks got together as the top-level body (Lombard Club). In addition to matters of general interest that were clearly neutral from a competition point of view (as indicated by the presence of representatives of the Austrian National Bank (OeNB), [they] discussed changes in interest rates, advertising measures, etc.

b) One level down were the product-based specialist committees. The most important ones were the "Lending Rates Committees" and the "Deposit Rates Committees", which, as their names suggest, dealt with lending and deposit interest rates and were convened either separately or jointly (Lending and Deposit Rates Committees). A constant flow of information took place in particular between these committees and the Lombard Club at the top. [A representative of a bank] thus transmitted the conclusions reached in the Lombard Club to [a representative of a bank] on the Deposit Rates Committee, who for his part would "take them into account on Monday at the Federal Lending and Deposit Rates Committee"(65).

c) Both the Lombard Club and the Vienna Lending and Deposit Rates Committees sent out signals to the diverse and numerous "regional committees", which held regular meetings in every province of Austria. In some provinces even, the hierarchical structure of "Lombard" and specialist committees was replicated.

d) The views expressed in the provinces flowed in the opposite direction back to meetings of the "Federal Lending and/or Deposit Rates Committees", in which bank representatives from Vienna met with their opposite numbers from the provinces and whose decisions were in principle valid for the whole of Austria.

e) For, inter alia, corporate banking, retail banking business involving the self-employed, mortgage lending and building loans, there were separate special committees (namely the Minilombard Committee, the Key Account Management Committee, the Liberal Professions Lending Rates Committee, the Mortgages Committee and the Building Loans Deposit Rates Committee).

f) Lastly, there took place at regular intervals a large number of further committee meetings on matters of relevance from a competition point of view: in the "Treasurer Committee", federal financing and interest rate questions were discussed; in the various payment transactions committees (in particular the Payment Transactions Committee, the Cross-border Transactions Committee and the Organising Committee of Austrian Credit Institution Associations), fees and charges for payment transactions were among the matters discussed; in the "Export Financing Committee", matters of export financing were discussed, along with other matters; and in the "Securities Committee", minimum fees, charges and interest rates were discussed.

g) From all these special committees there stands out the "Controller Committee", on which [representatives] of the controlling departments of the leading Austrian banks sat. It was at meetings of this committee that, for instance, uniform calculation bases and joint proposals for improving earnings were drawn up. The banks thereby increased the mutual transparency of their respective cost and calculation factors.

(52) Between all these committees concerned primarily with lending and deposit rates and with charges/fees, a regular flow of information took place. Discussions in one committee were often held over pending agreement in another. Lastly, the higher-ranking nature of the Lombard Club meant that, in controversial cases, its guidance was awaited, while in the case of less important decisions confirmation "at the next Lombard" was "considered unnecessary"(66).

(53) With a view to extensive, countrywide implementation of (or for the purpose of coordination with) the agreements concluded in the abovementioned Vienna committee meetings, there was also a regular flow of information to the various regional committees in the provinces and from the latter to the central committees in Vienna. Occasionally the regional committees themselves sent representatives to Federal Lending and/or Deposit Rates Committee meetings. A certain employee of a Carinthian bank thus attended federal committee meetings regularly "as representative for Carinthia" with a view to reporting back to the "Carinthian Banking Committee"(67).

(54) The results achieved in the various committees were transmitted within each institution to the managing board, where they were either translated into action immediately or fed into the decision-making process.

(55) The importance to the institutions concerned of this close network of regular and comprehensive coordination measures and agreements can also be described in quantitative terms. During the period covered by this investigation (1 January 1994 to the end of June 1998), in Vienna alone, i.e. excluding the numerous regional committee meetings, at least 300 meetings took place. In terms of working days, this means that, in Vienna alone, a meeting took place every four days.

(56) Lastly, even outside this institutionalised network, numerous contacts took place between representatives of the banks concerned, sometimes at the highest level, on interest rates and charges/fees.

(57) The banks were also anxious to avoid competition from competitors in other, closely related industries. So as not to see the agreements reached between the banks on building loan rates "thwarted by cheaper offers by insurance companies", it was agreed that "talks on the subject should be held with the insurance companies"(68).

2) The role of the lead institutions of the savings bank, agricultural credit cooperative and credit union groupings: intra- and inter-grouping coordination

(58) At this point the special part played in the network by the lead institutions Erste (ex-GiroCredit), RZB and ÖVAG must be examined. Their historical, well-practised role as coordinator and representative of their respective bank groupings on the Austrian banking market was directly utilised for the smooth functioning of the Lombard network. Firstly, they organised the mutual transfer of information between Vienna and the provinces within the respective bank groupings, and secondly they represented the interests of their grouping vis-à-vis the other groupings in the cartel.

(59) In ensuring the systematic, seamless feedback of information between the Vienna and regional committees, the well-coordinated communication channels played an important role. While in the case of the large banks, with their countrywide presence, these information channels ran between the head offices in Vienna and the provincial head offices, in the case of the multi-tier bank groupings recourse was had to specially created internal information and representation mechanisms.

(60) In its capacity as lead institution, GiroCredit/Erste took care of the flow of information to and from the institutions of the savings bank grouping in the provinces. Within the agricultural credit cooperative and credit union groupings, this task fell respectively to RZB and ÖVAG in their capacity as lead institutions. Details and illustrative examples of these ingenious representation and information mechanisms are to be found in Section 12.3 below.

(61) At the same time, the lead institutions represented not only their own interests at cartel meetings but those of their respective groupings as well. The other cartel members perceived the lead institutions in this connection as being representatives of their respective groupings. The agreements were therefore reached not only between the individual institutions themselves but also between the groupings, as can be seen from the following examples.

(62) BAWAG, for instance, announced its decision on a prospective cut in interest rates "by fax to the other sectors, which will then take their lead from it"(69); first of all, "opinion formation" took place "in the individual sectors" before "further negotiations" could take place between the groupings(70); before the agreed measure was implemented, there also took place a "consultation by telephone with the other sectors"(71); at a Consumer Lending Rates Committee meeting "the request" was made, addressed to GiroCredit, RBW(72) and ÖVAG, "to all sectors to get the provincial talks going"(73); and on another occasion "the agricultural credit cooperative sector (was) requested to do more to rein in offers by small cooperatives"(74). ÖVAG, for example, informed the other cartel members as follows: "CU sector: KSB (capital savings accounts) lower"(75), or "credit union sector favours 1/2 % cut ..."(76); "GiroCredit/savings banks" informed the other cartel members of a "cut in bonus-carrying deposits coordinated with provincial savings banks"(77); in early 1997 it was established to the satisfaction of cartel members that "the cuts agreed" at the end of 1996 had "in the meantime been implemented by all sectors"(78).

5.3. The pattern followed by committee meetings

(63) Cartel members constantly strove, especially at meetings of those committees which dealt explicitly with interest rates, to reach a consensus on the setting of rates. As described in detail in sections 7 to 11, these meetings all followed a very similar pattern.

(64) Often what occasioned such meetings was a change in the key lending rates(79) by the National Bank, whereupon the banks would promptly meet "for the joint clarification of measures to be taken"(80). In many cases the banks reacted to a lowering, say, of the key lending rates by immediately reducing deposit rates without at the same time reducing lending rates, claiming that "against a background of changing interest rates" they could "earn a profit only through asymmetrical interest rate adjustments"(81). Such an "asymmetrical" passing-on(82) of key lending rate reductions, which resulted in substantial interest earnings for the banks (at the expense of the consumer), called, if it was to be successful, for prior coordination between the banks. The coordinated delaying of lending rate cuts was therefore the "declared aim of all committee meetings on the subject"(83).

(65) The representative of the "host" institution would start the proceedings by asking for "contributions on current interest rate developments"(84), whereupon one participant after another would say what reaction (i.e. a certain rate reduction or increase) his institution considered appropriate at that time, "subject to coordination with the other institutions"(85). Sometimes meetings began with a debriefing about earlier joint actions. After all opinions and proposals, such as a reduction in the interest rates for one product "in exchange for an agreement"(86) on another product, had been put forward (and sometimes for the time being "supported by all those present"(87) or "flatly rejected by almost all those present"(88)), negotiations began on the joint manner of proceeding. Occasionally, individual banks had already "fully coordinated" their positions in advance of the cartel meeting, as in the case of the "[...] talks" prior to a Deposit Rates Committee meeting in July 1995(89). Finally, the proposals would be "put to the vote"(90) or agreement would be reached on a "compromise"(91).

(66) The negotiations regularly produced concrete results. The banks then stated in minutes and memoranda, for example, that "after tough negotiations (...) the following result was achieved"(92); "agreement was reached on a general cut in rates"(93); maximum interest rates "were agreed"(94); the rate rise for commercial loans was "agreed between the big Vienna banks as follows"(95); "for Austria as a whole, (interest rates were) agreed"(96); specific minimum rates were "fixed or endorsed"(97) or "coordinated"(98)"as guidelines"; a "consensus" was reached on the reduction of rates(99); after fairly lengthy discussions, "a general interest rate cut was finally imposed"(100); "there was unanimity" on an interest rate cut(101); "agreement" was reached on the cutting of deposit rates and on the introduction of a "minimum handling fee"(102); it was decided "to stop advertising interest rates"(103); the "following interest rate cuts were decided" on the deposit side(104); the "following agreements were made" for foreign currency loans(105); and participants would "put the agreed recommendations into practice in their respective areas"(106).

(67) The banks did not always succeed in reaching a consensus immediately. The common decision-making process often went, for purposes of "preliminary decision-making"(107), "reaching further agreement"(108), "refining"(109), "pre-coordination"(110) or "final coordination"(111), through several committee meetings (involving mostly the Vienna Lending and/or Deposit Rates Committee, the Minilombard Committee, the Federal Lending and/or Deposit Rates Committee and the Lombard Club)(112).

(68) If the close, intensive coordination within the network itself proved insufficient, interest rates had to be "finally negotiated"(113) outside the competent committees, either as part of "various discussions and agreements", "further telephone conversations"(114), "telephone contacts between the institutions"(115), or "(senior staff) phoning each other and discussing a coordinated approach as soon as possible"(116).

(69) If agreement was reached for each banking product concerned, "implementation dates" or the particular "deadline for implementing interest-rate cuts" was "agreed"(117). Sometimes, before implementation took place there was a further "telephone consultation with the other sectors"(118).

(70) Even the provision of information to the public on the particular measures that had been agreed was the subject of a "coordinated approach"(119) on the part of the banks.

(71) Sometimes, however, the banks were unable to reach agreement in the end, recording this, for example, as follows: "No agreement on rates (was) reached at the Lombard meeting"(120); with respect to capital savings accounts, "initially no unanimous agreement" could be reached(121); the banks were in the end unable "to come to any unanimous decision" and therefore had to "negotiate further" at another meeting(122); the joint attempt to make reductions in cash advances seemed "for the time being to have failed"(123); and it was "on the whole not possible to achieve the ambitious goals set (for lending rates) at the last talks"(124).

(72) Those institutions, which from time to time changed interest rates without prior coordination, caused "turmoil" in the relevant committee and were subjected to some sharp criticism from competitors. Such "completely surprising" measures, because they were "obviously kept secret", were "regarded as not very appropriate by all the other banks" inasmuch as they "contradicted the stated objective of all the relevant committee meetings"(125). If therefore an institution thought it necessary to carry out "surprising interest rate changes", then at least "immediate information should be provided to all members of the Lending Rates Committee". In such cases, all the other institutions could do was agree on a common reaction to such steps, described as a "breaking of ranks". The anger at this occasional "breaking of ranks" by BAWAG was so great in one instance that the bank was even threatened with exclusion from the cartel(126).

5.4. The object

(73) The object of the agreements at issue was to restrict and distort competition between the undertakings concerned in relation to the matters dealt with by the committees. The agreements and concerted measures were intended, at the expense of consumers, to improve the banks' earnings. A departure from the cartel agreements, which, in the banks' view, safeguarded "reasonable competition", would, on the other hand, lead to an "erosion of margins"(127). The banks themselves repeatedly expressed this aim in as many words, as can be seen from the following examples.

(74) The strategy paper referred to at (34) drawn up jointly by BA, CA, Erste, RZB, ÖVAG, PSK and BAWAG suggests a "displacing and limiting" of competition "to a bearable level". As a "mistake" to be "jointly avoided" in future, the banks identify "price competition" inasmuch as it can be "immediately engaged in by competitors". The measures which should be "jointly taken" included in particular the introduction of "new charges and commissions" (such as a handling, transaction or custody charge)(128).

(75) The Federal Deposit Rates Committee meeting of 22 February 1995 was declared open with the following words: "The exchange between banks of experience in relation to interest rates has in the past repeatedly proved to be a useful means of avoiding uncontrolled price competition. Today's Federal Deposit Rates Committee meeting (...) should thus likewise ensure a purposive and reasonable manner of proceeding in shaping all banks' terms of business. The way in which interest rates are currently being set shows very clearly that it is again necessary for us to sit down together and counteract problematic price developments. I hope that you will succeed today (...) in stopping these upward trends in interest rates. (I) hope, in the interests of your institutions, that constructive solutions will be found"(129).

(76) With a view to "easing the existing cut-throat competition"(130), it was necessary, through "disciplined market behaviour" and in particular through "full compliance" with "coordinated (...) minimum interest rates", to restrain "exaggerated competition"(131).

(77) The express "object" of the Federal Lending Rates and Deposit Rates Committees was, among other things, "to establish as far as possible a coordinated approach both in the lending and in the deposit sphere"(132) and "to find as uniform an approach as possible to reducing lending rates"(133).

(78) The banks' economic interest in these agreements was set out in a memorandum concerning the Special Consumer Lending Rates Committee meeting of 30 April 1996: "Should the specified minimum rates be enforced, this would be de facto tantamount to a rate increase and a widening of margins"(134). A further example of the benefits derived by the banks to the detriment of consumers is provided by the "asymmetrical" passing-on of key lending rate reductions(135) in the form of an immediate cut in deposit rates without a simultaneous cut in lending rates. The banks were aware that "against a background of changing interest rates" they could "earn a profit only through asymmetrical interest rate adjustments"(136). Such coordinated delays in reducing lending rates resulted in substantial interest earnings for the banks and was thus the "stated objective of all the relevant committee meetings"(137).

(79) The renunciation of advertising lending and deposit rates, agreed by the banks, was aimed at "counteracting the heated competitive situation" and "avoiding" competition between banks "at this information level"(138).

(80) According to a file note dated 7 March 1997 the committees served to "advise on measures to stem competition in the field of private financing, which has since become highly undisciplined once more. (...) All bank representatives therefore wish to see a return to rather more orderly competition"(139).

(81) In a file note on the Vienna Lending Rates Committee meeting on 5 May 1997 it is stated that: "On 5 May 1997 a Vienna Special Lending Rates Committee meeting took place with a view to setting once more minimum limits for lending rates in the case of personal loans and minimum margins for fixed-interest loans and foreign-currency loans in order to optimise income"(140). In another note on this meeting it is stated that: "The dramatic decline in the lending margin has induced the representatives of the Vienna institutions to hold countless 'coordination meetings' aimed especially at coming to grips with the recent 'hyperactivity' and dumping prices"(141).

(82) The competition-restricting purpose of the committees is not even disputed by some banks.

(83) To sum up, it is clear from their own evidence that the banks concerned strove to bring about among themselves, through their "useful" and "constructive" agreements, "controlled", "reasonable", "standardised", "disciplined", "eased", "sensible", "displaced", "limited", "moderate" and "orderly", all euphemisms for distorted and restricted, competition.

6. CHRONOLOGY OF EVENTS: INTRODUCTION

(84) The following sections describe how the institutionalised and interconnected network of numerous, wide-ranging committees led to a situation where the institutions concerned regularly and continuously jointly coordinated their behaviour on the market.

(85) The description takes the form of a chronology of events, starting in January 1994, the point at which Austria acceded to the European Economic Area.

(86) It focuses on those committees which were broadest in scope and the most closely interlinked in operational terms: the "Lombard Club", the "Minilombard Committee", the "Federal Lending and/or Deposit Rates Committees", and the "Vienna Lending and Deposit Rates Committees" (including the "Consumer Lending Rates Committee" and the "Liberal Professions Lending Rates Committee"). The other committees are either dealt with alongside these at the relevant points or mentioned in a separate section after the chronology of events. For reasons of space, however, it is not possible within the confines of this Decision to mention or describe all the committees in the network, and less still all the meetings(142).

7. CHRONOLOGY OF EVENTS: 1994

February to March: "asymmetrical" passing-on of the cut in the key lending rates - agreement to cut deposit rates and maintain lending rates; avoidance of competition in respect of building loans

(87) After the Austrian National Bank cut the discount rate(143) on 12 February, a Vienna Deposit Rates Committee meeting was held on 18 February on BA's premises "for the joint clarification of measures to be taken in respect of savings and current account deposits". At the meeting "agreement was reached on a general cut in rates": base rate to be cut to 2,25 % (BAWAG 0,25 % above that), premium-aided savings products to 4,75 %, capital savings accounts by 0,25 %, substitute products by 0,25 % each, special rates to 4,75 % in Vienna and 5 % in the provinces, and current account interest rates by 0,25 % on the debit and credit sides(144).

(88) It was decided to start implementing these cuts in the week beginning 7 March. By cutting interest rates in a coordinated manner the banks were in a position to reap substantial additional profits(145). On 8 March [senior representatives of Erste] decided, expressly referring to the need to keep in step with the bank's competitors, to cut the overdraft and credit rates by the agreed 0,25 %. [Senior representatives of BAWAG] also referred in [their] reduction decision to the "round of interest cuts". CA also cut its rates during the agreed period. According to an internal memo to [senior representatives of NÖ Hypo] entitled "Cut in savings deposit rates by 9 March 1994", a telephone survey among the banks involved had shown "that competitors will stick essentially, with small variations, to this target [set by the Deposit Rates Committee]"(146).

(89) Following the Vienna Deposit Rates Committee meeting, (...) representatives of the various banks met on 23 February in the Minilombard Committee. They agreed not to cut lending rates and to "put a limit of five years if possible, seven or eight years at the most, on the fixed interest rates increasingly demanded by customers ..."(147).

(90) An internal report of 22 February to [senior representatives of CA] states: "The eight main Vienna banks(148) have agreed, even in emergencies, not to pay above cash-market rates for option contracts (if this can be maintained, a new minimum margin will be introduced)"(149).

(91) At their monthly Lombard Club talks on 9 March the [assembled representatives] agreed that "[representatives] of the five new building loan banks" should "discuss the principles of a rational lending rates policy"(150). These were the banks set up between 1993 and 1995 by BA, BAWAG, CA and Erste, among others, for the specific purpose of granting building loans(151). These specialist banks were set up following the partial exemption from capital gains tax of securities (debentures) issued to refinance commercial building loans. A committee covering this field was set up in the same spirit as the existing committees covering all other areas of banking, in order to "avoid destructive competition between building loan banks"(152). The first meeting of the "Building Loans Group" (sometimes also referred to as the Building Loans Deposit Rates Committee) appears to have taken place on 6 February 1995.

April to June: discussions on cutting interest rates, "divergence" in savings deposit rates, fixed interest rates - the need for "joint decisive action" to improve earnings

(92) On 15 April the Austrian National Bank cut the key lending rates again. "Individual telephone conversations" immediately followed between NÖ Hypo, PSK and Erste, as did an "informal consultation" between CA, BA, Erste, BAWAG and RBW, during which it was "unanimously found" that another cut in savings deposit rates should not follow this key rate cut(153).

(93) Although "on the telephone, the sectors agreed not to take any measures to cut rates for savings and current account deposits", Bank Austria used the Vienna Deposit Rates Committee meeting of 25 April "to discuss possible cuts none the less". After a lengthy discussion "it was agreed", "so as to steady" the rates "which had recently been getting out of hand once again", to "keep to a kind of moratorium" for new savings deposits and to pay no more than 4,5 % interest in the Vienna area and 4,75 % in the provinces. Compliance with this agreement was to be monitored through "closer observation of competitors"(154).

(94) The matter was also discussed in the Deposit Rates Committee on 16 May. This episode illustrates how the banks deliberately acted together to the detriment of consumers. The banks were particularly concerned to avoid "a widespread" cut in savings rates, which would "exceed the cut posted at the counter", because they would then have to lower lending rates and thus pass on the cut in key lending rates to consumers. If savings rates had to be cut, then this should be done "with as little publicity as possible", especially as regards the "bonus-carrying" savings deposits which "did not require posting". In order to keep consumers in the dark, the banks' representatives agreed on an "approach on talking to the press" whereby, for example, a general savings interest rate cut would be said to be "impossible" and attention would be drawn to the "unchanged posted rates". In the end, however, the "coordinated approach" was a failure because an "apparently unfortunate statement on the subject" issued by one of the institutions undermined the joint PR effort and a general cut was subsequently reported on TV.

(95) The maximum rates for new savings deposits discussed on 25 April (see recital 93) were confirmed and "recommendations were unanimously adopted": interest rates for savings bonds should be "made to diverge", with interest rates for one-year savings accounts reduced by 0,25 % and rates for five-year accounts raised by 0,25 %. It was "agreed that these measures should be implemented this week and next, and by Whitsun (i.e. 22/23 May) at the latest". (PSK had until 26 May)(155).

(96) Things turned out differently, however. There was public criticism of the prematurely announced (see recital 94) cut in savings rates, so that it was not possible to "implement the recommendations of the Deposit Rates Committee meeting on 16 May 1994 to the extent planned"(156).

(97) The Minilombard Committee (for corporate banking) met directly after this Deposit Rates Committee meeting and talked about not lowering lending rates in response to the cut in key interest rates. The "absolute minimum rate" for operating loans was set at 8 %(157).

(98) The Deposit Rates/Consumer Lending Rates Committee meeting (held jointly with a Liberal Professions Lending Rates Committee meeting) of 21 June illustrates how information was exchanged between the Vienna committees and the provinces. As with every lending and deposit rates meeting, the representative of RZB obtained data on the current interest rate situation from the regional offices, in this case with the planned "divergence" in savings bond rates particularly in mind(158). The logistics of this exchange of information within the agricultural credit cooperative grouping was described in a letter from the Carinthia Raiffeisenlandesbank to the Vienna head office (RZB): "RZB informs us of the progress and conclusions of the various bank committees in Vienna, such as the Deposit Rates Committee and Lombard meetings. So that we can pass on this information as quickly as possible to the agricultural credit cooperatives in Carinthia, I would ask you to ensure that management informs the Carinthia representative directly and that the agricultural credit cooperative department of our institution is informed by the same post or by fax"(159).

(99) The abovementioned "divergence" was the main subject of discussion at this Deposit/Consumer Lending Rates Committee meeting. It was advocated by BA in particular. Raising the rates for five-year savings accounts, however, was "flatly rejected by almost all those present", since they were afraid that this time they would also have to raise the savings rates for bonus-carrying deposits, which would "nullify the recently implemented interest rate cuts". In the end, the proposed "divergence" was "put to the vote". BA and GiroCredit voted in favour, PSK, BAWAG, RZB and NÖ Hypo against. Erste and CA would follow the lead given by BAWAG.

(100) Another problem that the banks had to discuss in this meeting was the growth in demand from consumers for fixed-interest loans. Setting a fixed interest rate for the entire duration of the loan would bind the banks to that rate and they would no longer be able to respond to changes in the refinancing rates. They therefore needed to come to an arrangement to deal with the growing demand for this form of lending, unfavourable from the banks' point of view: "All the banks represented (...) agree that where possible fixed interest rates should no longer be quoted at all". As regards rates for mortgage loans, CA, BA and BAWAG, among others, would, in accordance with the "opinion of the committee", raise the rates to 7,25 % in July. A further increase to 7,5 %, however, was only "agreed on in principle", since its implementation was "viewed with scepticism". The discussion was finally brought to a close with a reference to "sticking to the agreed maximum rate of 4,25 % for fresh funds"(160).

(101) The Minilombard Committee met two days later. It found that for fixed advances, instead of the "minimum rate agreed some time previously" of VIBOR + 0,5 %(161), more favourable interest rates were occasionally being offered. The Vienna institutions were therefore urged to ensure that, as on previous occasions, the "[representatives] decide at the next Lombard meeting""not to tolerate" the undercutting of the agreed minimum interest rate "any longer"(162). The handwritten comment "too early" on this memo suggests, however, that it was considered premature for the [representatives] to deal with this matter at that time (in fact the [representatives] were unable to reach an agreement at the following meeting, see recital 104). Further items discussed were the maximum fixed-interest period (it was to be seven years, and in the event of early repayment a suitable penalty was to be payable) and the 0,5 % house bank margin (for details see section 12.1), where it was considered that joint action should be taken to counteract the "frequent attempts of exporters" to "bring the margins down". Finally "it was agreed to make a discreet cut in the prime rate (...) to around 9,75 % in the course of July"(163).

(102) During this phase the institutions seem not to have stuck very closely to the agreements made in respect of some products. Although in the case of savings deposits (employee group rates) "all the major banks were sticking to the agreed interest rates" (even BAWAG was "very disciplined and very cooperative"), in other areas a "lack of discipline in setting terms" was observed, which had again taken "the same forms as at the time when the regulative measures ceased to apply"(164). "Joint decisive action to improve margins" therefore seemed necessary. However, the general assessment was that "the right moment for binding agreements would come only once the (likely to be rather poor) half-yearly results [1994] were presented". Only then could "more discipline, emanating from the Lombard Club, be expected ..."(165).

(103) This meeting of the Lombard Club took place on 6 July. One of the subjects discussed by the [representatives] on this occasion can be identified from the internal memo written to brief CA's [representative], which states, "Since we (referring to BAWAG and PSK) have not implemented the proposal of the Deposit Rates Committee (regarding 'divergence', see recitals 97 and 99), pending a meeting between yourself and [...] [BAWAG's [representative]], the other institutions have not taken any action either. Apparently, [...] [BA's [representative]] wants to speak to you". They also discussed building advances and loans; CA, "in cooperation with Bank Austria and Erste and in opposition to the findings of the Deposit Rates Committee" (see recital 100) proposed an immediate increase. Lastly, they discussed employee group rates for personal loans, for which, although the "big banks usually stuck to the agreed interest rates", a one-off low rate below the agreed interest rates was being contemplated(166).

(104) However, "no agreement on rates was reached at the Lombard meeting"(167).

July to September: joint reduction of deposit rates, joint retention of lending rates; joint preview of charge increases

(105) On 11 July the [representatives] of BA and CA met to talk about lending and deposit rates. In an internal memo dated 8 July, addressed to BA's [representative] in preparation for the meeting, it is stressed, "that the price war in lending and deposit rates" must be "stopped immediately". Large-scale financing, rather than being carried out "in destructive competition by one competitor", should instead be implemented "in syndicate by the leading major banks" and with higher interest rates. Deposit rates should be cut (see recital 108)(168). CA's [representative] was likewise briefed by his subordinates before the meeting(169).

(106) On 13 July [a meeting took place at controller level]. [Representatives] for marketing/retail banking in the various banks also took part in this meeting "so that genuinely feasible action could be discussed". A "rapid cut" in deposit rates was considered to be "urgently required". It was therefore suggested to [representatives] responsible for deposit rates that preferential rates be cut by 0,25 % by 1 August and that no more than 4,5 % interest be paid, coupled with a cut in interest rates for one-year savings accounts by 0,5 to 4 %. Criticism was also expressed of the fact that some 20 or 30 companies (the Top 30) were "getting" the banks "to outbid one another"(170). In order to prevent this form of competition in future, it was suggested that they draw up a list of these companies and deal with them in accordance with a "code of conduct" or take joint action (syndicated financing).

(107) Lastly, "the Federal Deposit Rates Committee was asked to turn its attention to a comprehensive implementation process from the beginning of August"(171).

(108) These "talks on interest rate adjustments" (Federal Deposit Rates Committee) took place, taking express account of the "talks held [at senior management level] [on 6 July]", on 25 July. BA presented its views, developed "in full cooperation with Creditanstalt" (see recital 105) on a rate cut, on the basis of which the following "recommendations were formulated": cut in the preferential rates by 0,25 % (as discussed a short while previously in the Controller Committee) - in "a meeting between [...], [...] had also spoken" in favour of this option(172), "divergence" - in savings bonds (i.e. rate cut for one-year savings bonds and simultaneous increase for five-year bonds), cut in employee savings rates by 0,25 % and new maximum rates for medium-term notes. As recommended [at controller level], these measures were to be implemented as quickly as possible (by 1 August, if feasible), and it was agreed that mutual checks would not be undertaken in August "so as to ensure smooth implementation".

(109) Lending rates were also discussed, and it was found that in the provincial capitals "recommended rates were largely being followed", but that in rural areas lower rates were frequently offered, which practice should be "stopped in the coming weeks". The "priority goal" of raising building loan rates by 1 August was discussed. While Erste, GiroCredit and RBW "agreed with this proposal" or "had taken this step", BAWAG was prepared to raise rates only together with CA, while CA was waiting for BAWAG. There was therefore greater need for coordination or, as the minutes put it, "[representatives at senior management level] would have to talk"(173).

(110) Two days later, on 27 July, high-level telephone calls took place between BA, CA, BAWAG, Erste and GiroCredit on the subject of a concerted cut in deposit rates. In an internal memo, BA's representative on the Lending and Deposit Rates Committees summarised these telephone conversations as follows: "[...] thinks that he is bringing [...] round to the idea of a savings rate cut as discussed [at the Federal Deposit Rates Committee meeting on 25 July, see recital 108], but just wants to be sure that PSK will lower its rates too. If so, then BAWAG will cut its rates this coming weekend." The writer of this memo recommends that BA "stick to its schedule, GC (GiroCredit) and EÖ (Erste) are pretty reliable partners"(174).

(111) On 2 August APA reported that "the Austrian interest rate scene is changing once again": the big banks had cut deposit rates for one-year savings accounts and for preferential-rate deposits by 0,25 % on 1 August, while other banks planned to do the same by the middle of August. BA and BAWAG actually implemented the agreed "divergence" in capital savings, with Erste due to follow suit (it did so on 10 August(175)). CA finally decided after all to raise building loan rates to 7,25 % as discussed(176). Erste had already raised its rates for building loans on 29 June, explicitly stating as its reason that its "main competitors" would "also be raising their rates"(177).

(112) In September the time had also come for the banks to jointly discuss raising a number of charges the following year. At the Payment Transactions Committee meeting on 14 September the participants informed one another of the extent and timing of their planned increases in charges for maintaining accounts, accounting entries, cheque transactions and payment cards(178).

(113) Following a joint "review of the cut in deposit rates" carried out in July at a meeting of the Controller Committee held on 7 September(179), [representatives] met in the Minilombard Committee on 22 September. First, it was noted that for fixed advances, the maximum duration, agreed in June (see recital 101), of seven years was now being adhered to as far as possible "by all the institutions". It was not thought sensible to raise lending rates, else deposit rates would also have to be raised(180).

(114) The same conclusion was reached unanimously by those participating in the Vienna Lending and Deposit Rates Committee meeting the following day. No changes should be made "so that the market remains calm". It was counted "a success" that the agreed preferential rates "were being kept to", especially by the big institutions, as test deposits with competitors proved. As soon as the secondary market yield(181) exceeded 7,5 %, or by mid-November at the latest, another Lending and Deposit Rates Committee meeting should be held(182).

October to December: concerted rise in lending rates, avoidance of competing by advertising interest rates, confirmation of minimum charges for securities

(115) At (the) meeting [at controller level] on 25 October (...) an "urgent need for action on the lending side" [was identified], where the banks should "aim for interest rate rises for personal and corporate loans". To this end, BA would call a meeting of the Minilombard Committee, in which [representatives at controller level] would take part. As regards the "Top 30" customers, greater coordination in the area of syndicate financing was called for, so that rates could be improved (see recital 106)(183).

(116) The "rates table" for standard products drawn up and continually updated [at controller level] should be disseminated throughout the industry by means of "decentralised information initiatives following a snowball system"(184).

(117) The lending rate rises called for [at controller level] were then discussed in detail by the banks' representatives in respect of both retail and corporate banking.

(118) First, on 8 November, the Vienna Lending and Deposit Rates Committees met. They criticised the fact that individual institutions were not sticking to agreements made (whereas the Vienna banks were "keeping to the agreed rates" for fixed-interest savings deposits). After an in-depth discussion it was decided not to change anything on the deposit side, while declarations of intent followed as regards the lending side: BAWAG's representative "announced a rise in the interest rates for building loans", which "decision would be influenced by the outcome of the Lombard meeting". If BAWAG really were to implement this rise, BA announced directly that it would be prepared to raise its interest rates for building loans. The other participants contemplated raising rates by 0,15 to 0,5 %. Everyone agreed that, if questioned by the press or by the Association for Consumer Information for rate comparison purposes, they should in future stick to communicating only the (official) rates posted at the counter and not answer any further questions. In any case, those banks which posted the (higher) rates would "be seen as forcing prices up"(185).

(119) Lastly, the banks should in future avoid altogether advertising lending and deposit interest rates. To this end, ÖVAG proposed concluding a "gentlemen's agreement" (...) in the Lombard Club, which proposal received "broad support" from the other participants(186). The purpose of these and other measures was "to counteract the heated competitive situation"(187).

(120) Next the Minilombard Committee members met on 16 November 1994. In agreement with the proposals of the Controller Committee, the "unanimous opinion was that a general interest rate increase" of 0,5 % should be implemented "as soon as possible", and by 1 December 1994. For fixed advances, a minimum margin of VIBOR + 0,5 % was "considered necessary"(188). So that these increases could be "pushed through" by 1 December 1994, [senior management] should "coordinate matters by telephone"(189).

(121) At the "Documents Committee" meeting on 17 November, documentary credit fees were discussed. It was pointed out that "agreement had been reached years ago to charge rates which at least covered costs". However, some banks had in the meantime been offering more favourable rates. The call for "more price discipline" met with "general agreement" and a "special committee meeting" was called for to draw up "lower limits" for these rates(190).

(122) One of the subjects discussed at the Securities Committee meeting on 22 November was "minimum fees" for handling shares and bonds. Already at the "securities technique" working group on 25 November 1993, "changes in the fees/minimum charges for buying and selling, custodian fees for securities, and custodian fees for own issues", together with "the planned time schedule" for implementing them were subjects of joint discussion(191). BA had initially given the impression that it wanted to move away from the agreed minimum fees. At the meeting of 22 November this turned out to be a "misunderstanding"; BA, now as ever, gave its "full backing to the minimum fees". Only for "own-account placements going public" was BA considering not applying the agreed minimum fees. The representative of GiroCredit presented one of the market surveys carried out by his institution, which revealed that PSK and RBW (for domestic and foreign bonds), together with RZB (for domestic bonds) were clearly "undercutting" the minimum fees(192).

(123) On 23 November [a representative of CA] responsible for financing at the time reported to his [...] colleagues that in discussions with the members of the management boards of BA, RZB and GiroCredit on raising lending rates, they had been "unanimous". As far as CA was concerned, [a senior representative] would "give definitive information on how to proceed after talking with [...] [a senior representative of BA]"(193).

(124) The "practical arrangements" for the rate rise for commercial loans agreed on in principle in the Minilombard Committee on 1 December were then "agreed between the big Vienna banks as follows": a 0,5 % rate rise for all commercial loans by 1 January 1995 and a minimum interest rate for operating funds loans and investment loans of 8,5 %(194). Only BAWAG did not commit itself yet; the subject was to be discussed at the Lombard Club meeting on 7 December(195).

(125) The subjects discussed at the Lombard Club meeting of 7 December can be identified from two internal memos to [the representative of CA] in preparation for the meeting. The authors first refer to the "agreed" new rates and then raise the question of whether this has already been "discussed in the local interest rate committees". As regards deposit substitutes, BA had "lowered" its rates "to the agreed level", though BAWAG had been threatened with the issue of higher-interest CA medium-term fixed-rate notes, if it did not adjust its rates. BAWAG had responded by "promising to adjust". CA's [representative] was urged to "speak to" BAWAG's [representative] again about "lowering its savings-deposit substitutes to the agreed level"(196). Finally the [representatives] agreed that the Minilombard Committee should discuss the adjustment of debit rates for commercial loans and cash advances(197).

(126) On the same day as the Lombard Club meeting, a Controller Committee meeting took place, at which the 0,5 % rate rise for commercial loans decided on by the Minilombard Committee was reported. It was noted that the participants in the Treasurer Committee and Key Account Management Committee were not sticking to the "principles" agreed [at controller level]. [Representatives at controller level] should therefore take part in Treasurer Committee meetings in future.

8. CHRONOLOGY OF EVENTS: 1995

January and February: joint increase in lending rates and avoidance of an increase in deposit rates

(127) On 5 January Erste made an offer to a potential customer, who subsequently quoted it to CA in order to obtain a similarly favourable offer from it. The relevant CA employee noted in writing beside the Erste offer of "special deposit rate of 5 %" that there was an "agreement E (i.e. Erste), BA, CA" to pay only 4,25 % for such special deposits (Dispo deposits). The Erste employee had agreed to reduce the "special deposit rate as from 3,3. to 4,25 %"(198).

(128) In terms of "formal" agreements, 1995 began with a Vienna Lending and Deposit Rates Committee meeting held at 10.00 on 10 January. As far as special variable interest rates are concerned, a maximum interest rate of 5 % or, as from ATS 1 million in new funds, 5,25 % was "agreed", so as "not to further stoke up competition", though reference was also made to the lack of discipline in implementing agreements. Reference was likewise made to the "decision" of the Vienna Lending and Deposit Rates Committee on 8 November 1994 (see recitals 118 and 119) according to which, in response to enquiries from the media and consumer representatives, only the (official) posted rates, and not the (lower) special rates, should be made public, so as to ensure that competition between the banks was "avoided via this information level".

(129) As far as lending rates were concerned, the majority of the participants favoured an increase of 0,5 %. Only BAWAG had problems with building loans and consumer instalment loans and said it would therefore not be prepared to see an increase until the end of the quarter. The "final decision" on the increase was therefore to be taken "at the Lombard Club meeting on 18 January 1995, so that a uniform increase is introduced in respect of existing and new positions. The increase is to be applied as from the beginning of February 1995". In sending the report on this committee meeting to [a senior representative], the CA participant accordingly added the following handwritten note: "Important item on agenda 18.1. Lombard"(199).

(130) The Treasurer Committee was then convened for 14.30. "In order to get the new year off to a productive start", the meeting was to include discussion of "short-term lending and deposit rates". Those participants who did not themselves have any direct influence on the shaping of rates for fixed advances should take with them "an appropriate person responsible for key account management", for example the relevant member of the Key Account Management Committee(200).

(131) With a view to the "increase of 1/2 % in personal loans, which is to be dealt with in the Lombard", the CA on 11 January sent a fax marked "urgent, confidential" to Oberbank (Salzburg), BTV (Tyrol) and BKS (Carinthia) "to be coordinated in the local interest rate committees"(201).

(132) The Lombard Club meeting on 18 January agreed on the interest rate increase proposed by the representatives of the Vienna Lending and Deposit Rates Committees. The Erste [representative] reported in an internal memo on the meeting that "old and new commercial loans are to be raised by 0,5 % and new personal loans by 0,25 to 0,5 %"(202). Erste itself introduced the agreed 0,5 % increase for old and new commercial loans on 1 February, but did not introduce the increase on personal loans, since BAWAG was "prepared to discuss this" only as from February(203).

(133) This was done at the beginning of February: BAWAG decided on the increase in interest rates, so that BA, Erste, RBW, PSK-B and other banks were also able to "introduce an increase for old and new loans of up to 1/2 %"(204).

(134) On 24 January the members of the Securities Committee decided to set up a "working party BA, EÖ, RZB, BAWAG, GIRO and PSK" which, at the invitation of CA, was to provide advice on the fees to be charged for the ad hoc business appraisals carried out by the banks(205).

(135) At the Controller Committee meeting on 7 February, the banks reported on the agreed 0,5 % interest rate increases for commercial and personal loans. As regards deposit rates, the "current specimen calculation" was first discussed. Satisfaction was expressed at the fact that in Vienna the agreed terms for savings deposits were "holding", though the "lack of price discipline" outside Vienna as regards special rates was criticised. BA suggested that this problem should be solved by partitioning off individual regional markets and, for example, "regarding Tyrol and Carinthia as individual markets and not transferring the price policy there to Austria as a whole".

(136) Since in the [...] estimation [made at controller level] the interest rate curve for 1995 and 1996 would be less favourable than in 1994, there was "a need for action in order to avoid a deposit rate increase". The "decision" was therefore taken to "prevent deposit interest rate increases". The personal loan increase should be "pushed through", and the banks should "exchange by fax" and then "discuss on 2.3.1995 [date of the next Controller Committee meeting]" proposals concerning deposit rates. Lastly, Erste requested "exchange of experience" on cost control and investment budgeting: "BA and PSK will carry out exchange of experience"(206).

(137) "Interest rate developments regarding deposit rates" were also discussed at the Lombard Club meeting held on 8 February(207).

(138) On 8 February, [representatives] responsible for corporate customers at BA, CA, Erste, GiroCredit and RZB held "informal discussions". As a "direct objective" for fixed-date advances, it was decided to set a lower limit of VIBOR + 3/8 %. The participants wanted "to win the others over as well" to this project at the forthcoming Minilombard meeting on 23 February (see recital 145) and subsequently make sure that the result achieved was "safeguarded by holding committee meetings in the provinces". The minimum rate thus established and secured should then "be maintained for at least two months", and if there were any problems in individual cases, there would have to be "increased coordination"(208).

(139) On the same day, what was evidently the first meeting of the Building Loans Committee also took place. The Commission does not have any minutes or memos relating to it(209).

(140) On 17 February, the bank representatives met in the Vienna Lending and Deposit Rates Committee "to pre-coordinate the forthcoming Federal Deposit Rates Committee meeting on 22.2." (see recital 142). They reached "agreement regarding bonus-carrying savings deposits". "For Austria as a whole", interest rates of 5 % for newly acquired customers and 5,25 % where a competing offer had to be fended off were "agreed". BAWAG also informed its competitors that it would raise savings account rates at the same time as the personal loan increase. Since BAWAG had evidently taken this decision without prior agreement with its competitors, this piece of information came as a "complete surprise" to the other participants at the meeting(210).

(141) CA made a slip-up in February. Despite the proposal, discussed on several occasions with competitors, that advertising would no longer make reference to interest rates, CA's advertising department (acting against the objections of the personal loans department) advertised building loans with interest rates. In the estimation of the personal loans department, this could have the undesired consequence of leading to a "new round of interest rate competition" between the banks, quite apart from the loss of "credibility" on the part of CA with its competitors, since CA had always advocated a policy of no advertising. However, things were perhaps not so bad, since the advertising that had been criticised was confined to Carinthia and since, on "the principal market of Vienna", (as agreed) "interest rates were no longer being advertised in newspapers"(211).

February and March: negotiations on an increase in deposit rates, agreement on fixed advances and erosion of confidence in assurances given by BAWAG

(142) The abovementioned meeting of the Federal Lending and Deposit Rates Committee was held on 22 February. As some time had elapsed since the previous meeting of the Federal Lending and Deposit Rates Committee on 25 July 1994 (see recital 108), RZB, acting as the host, made a few introductory remarks in which it stated that "interbank exchanges of experience regarding rates" had so far proved to be "a useful instrument for preventing uncontrolled price competition". Although the banks had been able to improve their earnings through their coordinated increase in lending rates "implemented throughout almost all of Austria" (see in particular recital 132), there was now a need to "get together" and, as far as deposit rates were concerned, "counter problematic price trends", in particular "stop upward trends in interest rates".

(143) The bank representatives accordingly set about finding "constructive solutions" together, "for the good of their institutions". The issue was the "completely surprising", because, unusually, it had not been agreed with competitors, 0,5 % increase in the rate on savings accounts carried out by BAWAG (see recital 140). CA and Erste said that they would "fully match" this increase. BA tried to get these two banks to "retreat from this position", but "failed" to persuade them to do so. BA then informed the other participants that it would not match the BAWAG interest rate increases if other banks so decided. The credit unions and PSK supported the BA position, while NÖ Hypo adopted a "wait-and-see position". Following "detailed discussion" all the participants finally "agreed" to go along with the increase, while BA said it would "decide only in the afternoon".

(144) In addition, as regards special rates (savings accounts) in the Vienna area, "a maximum interest rate of 5 %" (for new and old capital) was "laid down". As regards cash bonds, "the participants in the discussion agreed" that they would not at present introduce any rate increases. The "overall position" ultimately reached "by agreement" was to try to get customers to opt for the savings account segment so as to "try to prevent" an interest rate increase in the bonus-carrying area(212).

(145) The next day, 23 February, a Minilombard meeting took place. As decided at the "informal discussion" on 8 February (see recital 138), the participants "agreed" to "apply rigorously" in the case of fixed advances a minimum premium of 3/8 %, a minimum period of one month and a minimum volume of ATS 10 million per transaction, starting on 8 March and initially limited to a few weeks (to be extended if there was "appropriate discipline"). The "local area of application" of this "agreement" would, by means of "regional agreements", also be "extended to the eastern provinces": branches in the provinces "should reach agreement in regional committee meetings"(213).

(146) [A meeting took place at controller level] on 2 March in order to deal with the "situation regarding lending and deposit rates" and reach agreement on whatever "countermeasures" were necessary(214).

(147) The Vienna Lending Rates Committee meeting on 13 March confined itself on this occasion to a detailed exchange of information on the current interest rate situation, since none of the banks thought a change in interest rates would be "possible and opportune" in the immediate future. Instead, it was considered necessary to "re-establish eroded confidence in the statements of the BAWAG representatives". As has been seen, BAWAG had made changes to interest rates without the prior agreement of its competitors (see recitals 140 and 143), and these had of course been "regarded as not very appropriate by all the other banks". If therefore any "surprising interest rate changes" were made in future, then at least "immediate information should be provided to all members of the Lending Rates Committee"(215).

(148) On 14 March the [representatives] of Erste and BA met over an "informal lunch". "In preparation" for this meeting, the relevant Erste senior staff were asked to state which issues from their respective business areas should be discussed at the meeting by the Erste [representative], e.g. "aggressive rates policy" or "allocation quotas for issues".

April to June: joint reduction of deposit rates and avoidance of a reduction of lending rates

(149) On 30 March the Austrian National Bank cut the key lending rates (discount rate by 0,5 %, lombard rate by 0,25 %, with effect from 31 March). In response to this, the major Austrian banks did not take independent decisions, but convened a Vienna Deposit Rates Committee meeting on 31 March, at which (in coordination with the meeting of the Federal Lending and Deposit Rates Committee held on 7 April (see recital 152), the joint reaction to the cut in key lending rates was "essentially agreed". The participants were "unanimously of the opinion" that the cut in key lending rates was the "last chance" this year for a lowering of interest on savings deposits. The following approach was therefore agreed on: a 0,5 % cut in special rates and employee savings products, a 0,5 % to 0,25 % cut in capital savings accounts and a 0,5 % cut in premium savings products. PSK was reproached for its three-month savings account (because it was not in accordance with the agreements); it justified itself by arguing that "this product was conceived as a special scheme and will be discontinued".

(150) The next steps were laid down as follows: "The preliminary decision-making process aimed at achieving this reduction" should, in the view of the participants, "also involve the [controller level]". Following discussion within the individual banks, there should then be "telephone consultation at management board level" and, by the end of the 14th calendar week, "transfer of information between those responsible". The reductions were to be introduced during Holy Week. "For the purpose of reaching further agreement" on the steps to be taken by the banks, a meeting of the Federal Lending and Deposit Rates Committee was convened on 7 April (see recital 152). "Confirmation", or, in the event of any problems, the "final coordination", was to be provided (...) at the next Lombard Club meeting on 19 April 1995(216).

(151) Amongst [the bank representatives], there was "unanimous agreement" at the Minilombard meeting on 6 April that, despite the cut in key lending rates, interest rates on loans should not be reduced. The "forthcoming reduction in deposit rates" (see the decisions taken at the meeting of the Federal Lending and Deposit Rates Committee held on 7 April (see recital 152) should "as far as possible not be reflected in lending rates". In the case of individual types of financing (current account and investment loans, bill discount, fixed advances, fixed-interest loans and credit by way of bank guarantee, house bank margin in export financing), specific minimum rates were "fixed or endorsed as guidelines"(217).

(152) At the meeting of the Federal Lending and Deposit Rates Committee held on 7 April, a "consensus" was reached on the 0,5 % reduction in special rates (a reduction of only 0,375 % by BAWAG). In addition, "in order to steady markets", "maximum rates" were agreed in respect of special rates for new business (4,25 % as from ATS 500000, 4,5 % as from ATS 1 million and 4,75 % as from ATS 5 million), and these maximum rates were also not to be exceeded by branch managers. The actual dates for the reduction "vary somewhat, but are mostly concentrated in the next week". BAWAG later reported that it wanted to introduce the reduction only after the Lombard Club had met on 19 April 1995.

(153) As regards capital savings accounts, by contrast, "initially no unanimous agreement" could be reached. Although BAWAG held out the "prospect" of a 0,375 % interest rate reduction, it would announce its final decision only on 10 April "by fax to the other sectors, which will then take their lead from it". Lending rates should remain unchanged(218).

(154) At the Controller Committee meeting on 25 April there was also agreement that lending rates should remain unchanged. It was decided to pursue a joint extrapolation of earnings; for this purpose, the individual banks' extrapolations should be combined(219). A meeting of experts should also work out a "uniform approach" for the calculation of remaining maturities. Another group of experts should examine securities accounts statistics/market shares. As regards internal calculation methods in respect of special rates for savings accounts, Erste would draw up a discussion paper. A "common solution" should also be found for the uniform classification of the 1000 largest corporate customers(220).

(155) At the Securities Committee meeting held on the same day (25 April) the subject of discussion was the "arrangement fees" charged to stock exchange participants by the OeKB, in its capacity as the clearing and settlement house for transactions on the Vienna stock exchange included in the arrangement(221). The [...] OeKB [representative] "called on everyone to accept the proposed arrangement fees [to be adjusted as a result of the introduction of the fully automatic trading system EQOS]". The meeting then reached "agreement with representatives of CA, RZB, BA, GC and Erste on the adjustment of arrangement fees". In addition, the "annual flat fees were agreed with the [representatives] of CA, BA, GC, Erste, RZB and ÖVAG"(222).

(156) Although the Commission does not have any minutes of the Building Loans Committee meeting held on 23 May, the agenda drawn up on 9 May includes reference to "current developments" and to "further common measures"(223).

(157) On 10 May, at their monthly Lombard Club meeting, the [representatives] discussed what from their point of view was the rather unsatisfactory trend in the interest margin. They agreed that "deposit rates were at present too high (Bank Austria: in general, 1 % too high)". For this reason "[...] [BA [representative]] proposed a Deposit Rates Committee meeting to cap maximum interest rates". This proposal was "supported by all those present"(224). As regards commercial loans, it was also proposed that uniform risk premiums be established. For this purpose, the "Controller Committee should make suggestions".

(158) The Federal Deposit Rates Committee meeting which the [Lombard Club] thought appropriate with a view to bringing about a coordinated interest rate reduction took place on 19 May. Those present shared the opinion of [the Lombard Club] that "a general interest rate reduction for deposits could not be avoided".

(159) BA began by proposing that special interest rates should be reduced immediately, but could get "no general agreement" on the matter. Similarly, its second suggestion, that there should first be a reduction in special interest rates and then a reduction in interest rates for capital savings accounts, "was not accepted". Finally, the following "compromise" was agreed on: as from 20 June, all deposit rates should be reduced by 0,5 %. As from that time, the "maximum rate" for special interest rates should be 4,5 or 4,75 %. "Already now", moreover, the "5 % rate" should no longer be used for acquisition purposes. As a back-up measure, it was decided that, in the area of lending activity, "no further advertising measures based on low interest rates or reductions in fees and charges" would be undertaken.

(160) So as to ensure that these decisions were also implemented in the provinces, it was agreed that the decisions would be "passed on to the provincial committees and acknowledged by them". Lastly, the measures decided on were to be "coordinated once again and laid down""at the next Lombard meeting" on 7 June.

(161) As far as timing was concerned, BA would "give the lead" and make a 0,5 % cut probably at the end of May. The other banks would, as agreed, "have completed this measure" by 20 June. CA would follow BA's timing, an internal CA memo on the subject includes the handwritten remark that it should be clarified "for when [CA] [representative] has agreed the reduction with [...] [BA [representative]]". BAWAG once again broke ranks, since it wished to introduce the cut no earlier than the end of June. It should therefore be "clarified at [senior management] level" whether it would be "possible to ensure prompter implementation without taking account of BAWAG".

(162) As far as lending rates were concerned, there was a "minimum consensus" that no cuts should be implemented(225).

(163) Only a few days after the Federal Deposit Rates Committee meeting, a Vienna Deposit Rates Committee meeting was "called at short notice" on 24 May in order to "bring forward as far as possible" the "originally envisaged date for the savings interest rate reduction" regarding the "agreements reached at the Federal Deposit Rates Committee meeting" (see recital 161). The extent of the reduction should, "as planned" and "already firmly promised by most of the institutions", amount to 0,5 % and should result in the following savings account interest rate scale: 4 % for one year, 4,25 to 4,325 % for two years, 4,75 % for three years, 5,25 % for four years and 5,75 to 6 % for five years.

(164) For these "interest rates cuts agreed at the last committee meeting", the "following implementation dates were agreed": BA, CA and ÖVAG (for existing customers) 1 June, GiroCredit and NÖ Hypo 6 June, Erste 7 June at the latest, ÖVAG (posted rate) 9 June, and BAWAG and PSK in the second week of June(226).

(165) On the same day, top-level representatives of BA, BAWAG, GiroCredit, RZB and PSK met "as a smaller group in the Minilombard Committee" for an informal "exchange of banking experience" and to discuss "the current situation". Since the "planned cuts" in deposit rates were likely to be "the last ones for some considerable time", the increased margin which this made possible should "be used to improve profits" and should on no account be passed on to consumers (i.e. there should be no reductions in lending rates). Although