INSTITUTIONAL SET-UP OF MACROPRUDENTIAL SUPERVISION IN AUSTRIA

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1 INSTITUTIONAL SET-UP OF MACROPRUDENTIAL SUPERVISION IN AUSTRIA Timo Broszeit Integrated Financial Markets Financial Market Authority FinSAC Workshop Macroprudential Policymaking in Emerging Europe Vienna,

2 LEGAL BACKGROUND Member States required to designate authority for enforcement of macroprudential provisions in CRR/CRD Designated Authority in Austria according to Austrian Banking Act: FMA ESRB recommends establishment of macroprudential authority/body (Recommendation ESRB/2011/3) Austrian Financial Market Authority Act establishes Financial Market Stability Board (FMSB) SSM-Regulation confers top-up power to ECB to counteract potential inaction bias of national authorities ECB may implement stricter measures if measures set by national authority are deemed insufficient to mitigate systemic risks Timo Broszeit Vienna, 2 June

3 INSTITUTIONAL SET-UP EU Timo Broszeit Vienna, 2 June

4 INSTITUTIONAL SET-UP AUSTRIA Secretariat Analyses Reports FMSB Annual Report Parliament OeNB Recommendation Expert Assessment on FMA Regulations FMA Approbation of FMA Regulations MoF Policy Measures Timo Broszeit Vienna, 2 June

5 FINANCIAL STABILITY BOARD Composition: Two representatives of the Ministry of Finance (Chair and Vice Chair) Two representatives of the Fiscal Advisory Council One representative of the FMA One representative of the OeNB Main objective of promoting financial stability is achieved by: identifying and analysing potential threats to the stability of the financial system; recommending policy measures to FMA, issuing risk warnings; fostering inter-institutional dialogue on systemic risks; regular meetings (at least four times a year). Timo Broszeit Vienna, 2 June

6 EXPERIENCE SO FAR Effective link-up stakeholders expertise, in particular link-up of OeNB s analytical and FMA s supervisory function Quarterly risk workshop with economists, micro and macro supervisors of OeNB and FMA Joint briefings of FMA s and OeNB s FMSB members Inclusion of Fiscal Advisory Council allows for adequate consideration of general economic conditions and sustainable public finances FMSB Secretariat ensures efficient coordination between stakeholders and thus minimises efficiency losses due to rather complicated set-up Cooperation with ECB/SSM so far very good, although experience at this point limited ESRB contributes to consistent macroprudential policy across Member States and promotion of macroprudential agenda, although stronger focus on non-banking sector would be desirable Timo Broszeit Vienna, 2 June

7 POLICY Design and implementation of macroprudential policy challenging: Macroprudential policy inherently complex Though number of enacted policies rapidly increasing in the EU, still little experience regarding effectiveness ESRB recommendation (ESRB/2013/1) provides helpful guidance: Breaks up ultimate objective, i.e. stability of financial system as whole, into intermediate objectives Assign at least one of the instruments available to each intermediate objective Timo Broszeit Vienna, 2 June

8 MATCHING INSTRUMENTS AND INTERMEDIATE OBJECTIVES Instruments Intermediate Objectives Balance sheet structure (e.g. CCB, SRB) Prevent excessive credit growth and leverage Prevent excessive maturity transformation Terms and conditions (e.g. LTV, DTI, DSTI) Limit exposure concentration Correct misaligned incentives and moral hazard Incentive structure (e.g. SII-Buffer, credible resolution framework) Increase resilience of financial infrastructure Timo Broszeit Vienna, 2 June

9 INSTRUMENTS IN AUSTRIA BANKS Instruments available since : Systemic risk buffer (SRB) Stricter risk weights and LGD-floor for mortgages (Art 124/164 CRR) Pillar-2 instruments Flexibility package (Art 458 CRR) Instruments available since : Countercyclical capital buffer (CCB) Buffer for systemically important institutions (G/O-SII Buffer) Currently no additional instruments such as LTV, DTI, DSTI available Timo Broszeit Vienna, 2 June

10 POLICY ACTIONS FMSB Recommendation on the systemic risk buffer and the O-SII buffer: SRB of up to 2% for twelve banks (due to systemic vulnerabilities and/or systemic cluster risk) O-SII buffer of up to 2% for seven banks Implemented by the FMA as of (SRB) and (O-SII) Quarterly FMSB Recommendations on the countercyclical capital buffer: Currently no indications of excessive credit growth, therefore kept at 0% Implemented by the FMA as of Publication of the Macroprudential Policy Strategy for Austria (Jan 2016): Objectives of macroprudential policy Decision-making process Communication and accountability Timo Broszeit Vienna, 2 June

11 CHALLENGES Forward-looking risk analysis in a dynamic environment with limited experience and data Communication is key, both to the outside world and among regulators/supervisors Circumvention of macroprudential regulation Geographically => need for functioning reciprocity framework (see recent ESRB Recommendation ESRB/2015/2) Sectorally => extend to non-banking sectors Historical experience ambiguous and limited Challenges when taking away the punch bowl (special interest pressure) => Macroprudential policy not a panacea and success crucially depends on co-operation with other areas (micro supervision, monetary policy, etc.) Timo Broszeit Vienna, 2 June

12 USEFUL LINKS Austrian Financial Market Authority (FMA) Oesterreichische Nationalbank (OeNB) Financial Market Stability Board (FMSB) European Systemic Risk Board (ESRB) ECB Single Supervisory Mechanism (SSM) Timo Broszeit Vienna, 2 June

13 CONTACT Timo Broszeit Head of Unit Systemic Stability and Markets Austrian Financial Market Authority The views expressed in this presentation are those of the author and do not necessarily reflect those of the Austrian Financial Market Authority. Timo Broszeit Vienna, 2 June

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