EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 28 October 2009 
on measures to improve liquidity and increase the competitiveness of credit institutions 
(CON/2009/86) 
 
Introduction and legal basis  
On 14 October 2009, the European Central Bank (ECB) received a request from the Austrian Ministry of 
Finance for an opinion on a draft Federal law am ending the Austrian Bankin g Act and the Securities 
Supervision Act (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the sixth indent of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions1, as the draft law relates to rules applicable to financial institutions insofar as they 
materially influence the stability of financial institutions and markets.  
The consulting authority has informed the ECB that th e draft law will enter into force on 1 January 2010 
and that, due to the legislative schedule of the Austri an Parliament, the ECB has been asked to deliver its 
opinion by 23 October 2009. This implies that the consulting authority is invoking the exemption under 
Article 3(2) of Council Decision 98/415/EC, which al lows for a reduction of the minimum time limit for 
consultation of one month only in case of extreme urgency.  
In accordance with the first sentence  of Article 17.5 of the Rules of Procedure of the European Central 
Bank, the Governing Council has adopted this opinion. 
 1. Purpose of the draft law 
1.1 According to the explanatory note of the consulting authority, the main purpose of the draft law is 
to introduce measures aimed at improving liquidity and to increase the competitiveness of credit institutions.  
1.2 The measures contained in the draft law are expected to have anti-cyclical effects to be achieved as 
follows.  
 Interest on supplementary capital is only to be  paid out in so far as it is covered by the 
distributable profits (whereas currently it may be paid out if it is covered by the profit for the year after tax, i.e. before the allocation of reserves). 
                                                           
 
1  OJ L 189, 3.7.1998, p. 42. 
2  In order to strengthen their liquidity, Austrian credit institutions are to be entitled to include 
(reverse) repurchase agreements with an option to resell ( unechte Pensionsgeschäfte ) as 
second class liquidities.  
 The draft law will also allow credit institutions to  redeem individual tranches of participation 
capital, provided they were id entified at the time of issuance2. This provision is intended to 
facilitate the redemption of participation capital provided to credit institutions by the Federal 
Government in accordance with the recapitali zation scheme of the Financial Stability Act 
(FinStaG).  
 Based on the agreement of the Member States in the Council’s Working Group on Financial 
Services in October 2009, the transitional floo rs for credit institutions or groups of credit 
institutions that apply the internal ratings ba sed approach (hereinaft er the ‘IRB approach’), 
as referred to in Article 152 of th e Capital Requirements Directive (CRD)3, are to be 
extended until 31 December 2011.   
1.3 The draft law also amends the supervisory pro cedure for the IRB approach and the models for 
groups of credit institutions, provided that parent and subsidiary banks consistently and jointly 
fulfil the approval requirements. In such cases , the Austrian Financial Market Authority may 
restrict its assessment to the parent credit instit ution provided such an approach is appropriate. 
1.4 In addition, a minor amendment to the Securities Supervision Act 2007 is proposed. In future, only 
investment companies, but not credit institutions, will  be required to disclo se their fixed overheads 
in their annual accounts. 
 2. General observations  
2.1 The ECB understands that the draft law is intende d to enhance the liquidity framework of credit 
institutions, extend the provisions for transitiona l floors, and mitigate procyclical effects.  
2.2 The ECB notes that work is under way at intern ational and European levels with a view to 
strengthening the global capital framework by build ing stronger buffers into the financial system, 
covering capital, liquidity and provisioning, that will constrain the procyclical build-up of leverage 
in the system. The ECB takes the view that the initiatives of national governments to mitigate procyclicality should be aligned with the outcome of this work.  
2.3 The ECB also notes that the CRD is currently being reviewed and amended at European level. It 
may therefore be necessary to align the draft law with the amended CRD.  
. 
                                                           
 
2  Equity capital may also be redeemed if substituted with capital of equivalent or higher quality. 
3  Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and 
pursuit of the business of credit institu tions (recast) (OJ L 177, 30.6.2006, p. 1). 
3 3. Specific observations 
3.1 The ECB acknowledges that allowing the redempti on of individual tranches of participation 
capital, provided they are identified at the time  of issuance, could contribute to limiting the 
duration and scope of recapitalisation schemes, and thus retain the temporary nature of the 
government’s involvement in financial support schemes.  
3.2 The ECB acknowledges the need to ensure intern ational fair competition for the treatment of 
dividends paid on supplementary capital. However,  as far as the stated objective of mitigating 
procyclicality is concerned, the amendment to Article 23(7) No 24 would only have the intended 
counter-cyclical effects if credit institutions set aside annual profits in good times to be drawn on in 
times of economic stress, when annual profits may easily turn into losses and capital buffers are 
needed to absorb these losses. Yet, given that credit institutions often follow stable dividend 
policies, the proposed amendment may provide an incentive to credit institutions to distribute 
dividends on supplementary capital in excess of the ‘profit or loss for the year after tax’, simply by 
drawing on profits brought forward or on reserves built up in previous periods. Therefore, the ECB sees the risk that, in practice, the proposed amendment could lead to results contrary to those 
intended if credit institutions were allowed to reduce their capital base by paying out stable 
dividends. Mitigating procyclicality by introducin g prudential requirements should rather aim to 
give credit institutions incentives to maintain their lending activity also in times of stress.  
 
This opinion will be published on the ECB’s website. 
  
Done at Frankfurt am Main, 28 October 2009. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                           
 
4  The amendment would allow the payment of dividends from ‘distributable profits’, i.e. net profits or losses for the year, 
rather than ‘profits or loss for the year after tax’, i.e. profit s or losses before ‘changes in reserves’ and ‘profits or losse s 
brought forward’.