EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 27 August 2003
at the request of the Austrian Federal Ministry of Finance
on a draft Federal law
on the mortgage bond division of the Austrian regional public banks and amending the Savings
Bank Act as well as the Law on funding debentures
(CON/2003/17 )
1. On 23 July 2003 the European Central Bank (ECB) received a request from the Austrian Ministry
of Finance for an opinion on a draft Federal law on the mortgage bond division of the Austrianregional public banks and amending the Savings Bank Act as well as the Law on fundingdebentures  (Bundesgesetz über die Pfandbriefstelle der österreichischen Landes-
Hypothekenbanken und über die Änderung des Sparkassengesetzes und des Gesetzes betreffendfundierte Bankschuldverschreibungen) (the ‘draft law’).
2. The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty, the first
indent of Article 4(a) of the Protocol on the Stat ute of the European System of Central Banks and
of the ECB and the sixth indent of Article 2(1)  of Council Decision No 415/98/EC of 29 June 1998
on the consultation of the European Central Bank by national authorities regarding draft legislativeprovisions
1, since the draft law contains provisions that could materially influence the stability of
financial institutions and markets, notably concerning the abolition of public guarantees providedby the Austrian Länder  (states) and the Gemeinden  (local authorities) in relation to debts of the
Austrian regional public banks and local authority savings banks respectively. The ECB does notconsider that it is competent to deliver an opinion on those provisions contained in the draft law,which revise the legislation applying to the mortgage bond division of the Austrian regional publicbanks ( Kundmachung  (Official announcement) GBlÖ Nr. 492/1939) and update the Gesetz vom
27. März 1905 über fundierte Bankschuldverschreibungen  (Law of 27 March 1905 on funding
debentures) (RGBl Nr. 213/1905), since these pr ovisions are not covered by Article 2(1) of
Decision No 415/98/EC. In accordance with the first sentence of Article 17.5 of the Rules ofProcedure of the European Central Bank, the Governing Council of the ECB has adopted thisopinion.
3. The ECB notes that the part of the draft law relevant to the present opinion abolishes the joint and
several liability of the Austrian states and the public guarantees provided by the local authorities in
                                                     
1OJ L 189, 3.7.1998, p. 42.
2relation to debts of the mortgage bond division of  the Austrian regional public banks and local
authority savings banks in the event of default. The scope of these public guarantees is somewhatlimited, given that they only apply in the event of insolvency or liquidation and where the creditinstitutions concerned have insufficient assets to satisfy their creditors. Moreover, the regionalpublic banks benefiting from the guarantees pay a premium for them. The relevant provisions ofthe draft law have been proposed in order to co mply with Treaty requirements regarding the
prohibition of State aid and with an agreement of 1 April 2003 concluded in this context betweenthe Republic of Austria and the European Commi ssion, which requires the abolition of the Austrian
states’ and local authorities’ liability. 
4. The ECB welcomes the provisions implementing the agreement reached between the Republic of
Austria and the Commission, which laid down a framework for phasing out public guarantees
(‘Ausfallshaftung’ ) in favour of the Austrian regional public banks and local authority savings
banks. This important development is consistent with the abolition of public guarantees in favourof financial institutions in other Member States, namely in Germany ( ‘Anstaltslast’  and
‘Gewährträgerhaftung’ ) and in France (guarantees by the Caisse des Dépôts et Consignations  in
favour of its commercial subsidiary, designated as CDC IXIS). From the ECB’s perspective, theserecent developments, which treat public guarantees as incompatible with the requirements of the
single market, also foster the integration of EU financial markets. An efficient and well-integratedsingle financial market has to function in strict accordance with the principles of open competitionand transparency as well as having appropriate safeguards in place regarding effective supervisionand financial stability. Moreover, several recent studies show that while the integration ofwholesale markets has been advanced by the intr oduction of the euro, retail markets for financial
services remain segmented in national, if not regional, components. In this respect, the abolition ofpublic guarantees in Austria should not only improve domestic competition, thus benefitingconsumers, but also reduce possible barriers to entry into the Austrian market and thereforecontribute to a level playing field in EU markets. As a result, the regional diversification of banks’portfolios might increase, with a potentially positive impact on credit institutions’ resilience.
5. The ECB would expect that the pha sing-out of public guarantees would not have such a material
impact on the viability of institutions currently covered by such guarantees as to affect their
financial stability. The ECB notes however that the phasing-out of public guarantees will certainlycreate challenges for some of the credit institutions previously covered by such guarantees, sincethe guarantees give them a certain competitive ad vantage over other institutions operating in the
market. These institutions will in the future be assessed on the basis of their credit risk and theirexternal rating will not reflect any more the presence of public guarantees. This will have an impacton their funding costs, while the (potential or actua l) entry of new competitors into the local retail
market will also put pressure on profitability. They will therefore have to adapt their operationalframework to a more demanding and competitive market environment. The ECB welcomes the factthat a progressive transitional period has been agreed with the Commission, which should givethese institutions an adequate opportunity to adjust to the new competitive environment. The
3Austrian authorities may wish to monitor the adap tation process, which is expected to be smooth
given the generous transitional period. In this resp ect, it would seem desirable for the institutions
concerned to be proactive in restructuring their ac tivities as necessary at an early stage, both in
order to improve their resilience and to reap the benefits of a more competitive and transparentmarket. The ECB would therefore recommend that, in implementing the Republic of Austria’sagreement with the Commission, the institutions  affected by the draft law maximise the
opportunities for adjustment which the transitional period offers.
6. The ECB confirms that it has no objections to the competent national authorities making this
opinion publicly available at their discretion. This  opinion will be published on the ECB’s website
six months after the date of its adoption.
Done at Frankfurt am Main on 27 August 2003.
The President of the ECB
[signed]
Willem F. DUISENBERG