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)
Date: 2003-08-27
Institutions: European Central Bank
Subjects: Austria, State aid, bank, credit institution, financial stability, guarantee, national law

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  Austrian

regional  public  banks  and  amending  the  Savings  Bank  Act  as  well  as  the  Law  on  funding

debentures 

(Bundesgesetz 

über 

die  Pfandbriefstelle 

der 

österreichischen  Landes-

Hypothekenbanken  und  über  die  Änderung  des  Sparkassengesetzes  und  des  Gesetzes  betreffend

fundierte 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 Statute 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 legislative
provisions1, since the draft law contains provisions that could materially influence the stability of

financial institutions and markets, notably concerning the abolition of public guarantees provided

by  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 not

consider 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 public

banks  (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  provisions  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  of

Procedure  of  the  European  Central  Bank,  the  Governing  Council  of  the  ECB  has  adopted  this

opinion.

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

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OJ L 189, 3.7.1998, p. 42.

                                                     
relation  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 somewhat

limited, given that they only apply in the event of insolvency or liquidation and where the credit

institutions  concerned  have  insufficient  assets  to  satisfy  their  creditors.  Moreover,  the  regional

public banks benefiting from the guarantees pay a premium for them.  The relevant  provisions of

the  draft  law  have  been  proposed  in  order  to  comply  with  Treaty  requirements  regarding  the

prohibition of State aid and with an agreement of 1 April 2003 concluded in this context between

the Republic of Austria and the European Commission, 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 favour

of  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, these

recent  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-integrated

single financial market has to function in strict accordance with the principles of open competition

and transparency as well as having appropriate safeguards in place regarding effective supervision

and  financial  stability.  Moreover,  several  recent  studies  show  that  while  the  integration  of

wholesale markets has been advanced by the introduction of the euro, retail markets for financial

services remain segmented in national, if not regional, components. In this respect, the abolition of

public  guarantees  in  Austria  should  not  only  improve  domestic  competition,  thus  benefiting

consumers,  but  also  reduce  possible  barriers  to  entry  into  the  Austrian  market  and  therefore

contribute 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 phasing-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 certainly

create challenges for some of the credit institutions previously covered by such guarantees, since

the  guarantees  give  them  a  certain competitive  advantage  over  other  institutions  operating  in  the

market. These institutions will in the future be assessed on the basis of their credit risk and their

external rating will not reflect any more the presence of public guarantees. This will have an impact

on their funding costs, while the (potential or actual) entry of new competitors into the local retail

market will also put pressure on profitability. They  will  therefore  have  to  adapt their  operational

framework to a more demanding and competitive market environment. The ECB welcomes the fact

that  a  progressive  transitional  period  has  been  agreed  with  the  Commission,  which  should  give

these  institutions  an  adequate  opportunity  to  adjust  to  the  new  competitive  environment.  The

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Austrian authorities may wish to monitor the adaptation process, which is expected to be smooth

given the generous transitional period. In this respect, it would seem desirable for the institutions

concerned  to  be  proactive  in  restructuring  their  activities  as  necessary  at  an  early  stage,  both  in

order  to  improve  their  resilience  and  to  reap  the  benefits  of  a  more  competitive  and  transparent

market.  The  ECB  would  therefore  recommend  that,  in  implementing  the  Republic  of  Austria’s

agreement  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

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