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)
Date: 2009-10-28
Institutions: European Central Bank
Subjects: Austria, competitiveness, credit institution, financial stability, money-market liquidity, national law, share capital

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  amending  the  Austrian  Banking  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  Central  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 the draft law will enter into force on 1 January 2010 

and that, due to the legislative schedule of the Austrian 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 allows 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. 

 
 
 
 
                                                            
 

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 identified 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  recapitalization  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  floors  for  credit  institutions  or  groups  of  credit 

institutions that apply the internal ratings based approach (hereinafter the ‘IRB approach’), 
as  referred  to  in  Article  152  of  the  Capital  Requirements  Directive  (CRD)3,  are  to  be 

extended until 31 December 2011.   

1.3  The  draft  law  also  amends  the  supervisory  procedure  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 institution 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 disclose their fixed overheads 

in their annual accounts. 

2.  General observations 

2.1  The  ECB  understands  that  the  draft  law  is  intended  to  enhance  the  liquidity  framework  of  credit 

institutions, extend the provisions for transitional floors, and mitigate procyclical effects.  

2.2  The  ECB  notes  that  work  is  under  way  at  international  and  European  levels  with  a  view  to 

strengthening the global capital framework by building 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  
3  

Equity capital may also be redeemed if substituted with capital of equivalent or higher quality. 
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 institutions (recast) (OJ L 177, 30.6.2006, p. 1). 

2 

 
                                                            
3. 

Specific observations 

3.1  The  ECB  acknowledges  that  allowing  the  redemption  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  international  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  introducing  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. profits or losses before ‘changes in reserves’ and ‘profits or losses 
brought forward’. 

3