Your reference, Your message of Our reference, contact person Extension Date BSBV 47/Dr.Rudorfer/Br/Ko December 2009

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Griffin Harmon
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1 Federal Division of Banking and Insurance Wiedner Hauptstrasse 63 PO Box Vienna T +43 (0) EXT F +43 (0) E bsbv@wko.at W Your reference, Your message of Our reference, contact person Extension Date BSBV 47/Dr.Rudorfer/Br/Ko December 2009 Subject: Commission Communication on an EU Framework for Cross-Border Crisis Management in the Banking Sector Dear Mr Nava, The Banking and Insurance Division of the Austrian Federal Economic Chamber representing the entire Austrian Banking Industry appreciates the opportunity to comment on the communication of the EU Commission on an EU Framework for cross-border crisis management in the banking sector. Generally, we welcome the Commission's initiative to look into cross-border crisis management for financial institutions. However, we are doubtful whether the individual crisis problems of institutions, each of which has its distinct organisational make-up, can actually be resolved using a specified programme of measures. Much rather, we would consider an individual contingency organisation made up the supervisor and the distressed institution which is able to cater to the specific needs of the situation much more expedient. Scope of an EU bank resolution regime (1) Should an EU regime focus exclusively on deposit-taking banks (as opposed to any other regulated financial institution)? As financial institutions are closely interconnected the failure of any kind of financial institution is likely to pose a systemic risk to the financial system. In light of this and in order to limit possible distortion of competition, an EU regime should apply to all kinds of banking groups (including investment banks), not only to deposit-taking banks. A level playing field for all FIs should prevent arbitrage and ultimately help stabilise the financial system. (2) Should an EU regime apply exclusively to cross-border banking groups, or should it also encompass single entities which only operate cross-border (if at all) through branches?

2 - 2 - The way a banking group operates (through subsidiaries or through branches) should not be the decisive criterion for the application of an EU regime. All banking groups operating cross-border should be affected in the same way; however, the rules should be proportional to the size, nature and complexity of the business undertaken by banking groups. (3) Should an EU regime apply exclusively to 'systemically important' institutions? If so, how should this concept be defined and how should the relevant institutions be identified? An EU regime should not focus exclusively on systemically important institutions (cf. question 1). Early Intervention supervisory tools Generally, we welcome the installation of a European Banking Authority as coordination office for crisis management. However, any such central coordination for crisis management will only serve its purpose if given the necessary competence. Should this not be possible, we would prefer the national supervisory authorities to take a coordinated approach under the direction of the country in which financial institution is based. (4) Do supervisors need additional tools and powers for early intervention, and if so, which? The EU has set ambitious goals regarding the implementation of the new supervisory architecture. The ESRB has been provided with a lot of new competences and responsibilities, and it will be challenging enough to fulfil these duties and responsibilities. We consider the tools currently available to supervisory authorities by virtue of article 136 CRD sufficient. (5) Should the application of early intervention measures only be the result of supervisory (joint) assessment of emergency situations, or would there be any advantage in structured or automatic triggers for early intervention? In our view, early intervention mechanisms can only be applied following supervisory assessment as we consider automatic triggers problematic and error-prone due to the complexity and variety of possible scenarios. Furthermore, we would like to point out that the trigger of each past and future crisis is different and thus each crisis comes with its own distinct problems. Early intervention by the supervisor would be meaningful only if any action taken would not have to adhere to a crisis catalogue prescribed ex ante and the authority could coordinate its activities with those of the institution's management and identify the weak points. (6) Is any modification of the current framework for the supervision of branches necessary or desirable? The way a banking group operates (through subsidiaries or through branches) should not be the decisive criterion for the application of an EU regime. All banking groups operating across crossborder should be affected in the same way.

3 - 3 - (7) The Commission Services invite views on a requirement for 'wind down' plans. Austrian regulations already allow supervisory authorities to require financial institutions to produce contingency plans when necessary. Mandatory contingency plans should if at all - only be stipulated in crisis situations. Given the dynamism of the banking business, a standardised requirement to produce living wills with detailed compulsory content is not feasible. Creating such documents incurs considerable costs and resources in normal economic times, let alone in crisis situations. Details of any such comprehensive wind-down plan would have to be adjusted on a regular basis, since the key data of any institutions changes as it develops with time. This would entail a considerable effort in documentation. What is more, facts and figures tend to change almost daily in times of crisis so that an ex-ante information catalogue would only be suitable to a limited extent for the comprehensive valuation of the institution in case of crisis. Therefore, only a coordinated, joint approach embracing both supervisor and institution would make sense. In case of crisis, the on-site supervisor in the institution could be given the possibility of identifying any weaknesses with the assistance of internal bank experts. In our understanding, one implied effect of the living wills is to encourage banking groups to assess possibilities of reducing complexity and of decentralising their businesses, resulting in organised stand-alone subsidiaries. This would be inefficient and would create trapped pools of capital and/or - as funding may become more expensive or limited - this would also have a direct impact on the availability of loans to the local economies. On the other hand, we would have to insist that the centralised or decentralised system of any banking group be assessed for long-term periods and not changed when a crisis occurs. Asset Transfer (8) The Commission Services invite views on the advantages, if any, of designing a framework for asset transfers along the lines outlined above. In principle, we welcome the possibility of intra-group asset transfers. What needs to be kept in mind, however, is that, in the past, such transfers were frequently prevented by the national authorities. Care should therefore be taken to ensure that an authorisation is not undermined by national exceptions. Moreover, a harmonisation of regulatory requirements, especially in the area of national general accounting principles, should be considered. Resolution Tools A harmonised bank resolution framework should be adopted based on bank-specific regimes that distinguish between banks that are insolvent or likely to become insolvent and other commercial entities and seek broader social objectives. Question 17: What changes to insolvency law would be necessary to support bank resolution measures (e.g. moratorium, post commencement financing, etc.)?

4 - 4 - First, we believe that changes in insolvency law should not be given priority, since insolvency prevention measures should have an impact at a much earlier stage. Still we would like to acknowledge the effort to create a comprehensive system, which includes new measures on insolvency. Coordination vs. integration of resolution and insolvency An integrated framework under which the insolvency of the group as a whole would be conducted in a single process in compliance with a single applicable regime is highly desirable. Question 23: Coordination v. Integration of Resolution and Insolvency How can cooperation and communication between authorities and administrators responsible for the resolution and insolvency of a cross-border banking group be improved? Are mechanisms for cooperation and communication desirable? The Commission services would also welcome views on the form that such mechanisms might take. Although we have no insight into the inter-authority communication and its current challenges, we are convinced that the implementation and extension of the following measures, as has been ensured so far, could facilitate cooperation: Cooperation and exchange of information among national regulatory authorities would help them to detect risks at an early stage. Countermeasures could be coordinated and set up early enough to avert insolvency. Obligatory reporting on the progress of insolvency proceedings concerning cross-border banking groups. Perhaps a common platform would facilitate the exchange of information. General requirements for court orders and resolutions to facilitate acceptance in foreign proceedings. A clear definition of competences between home and host supervisory authorities would be necessary. In addition, we recommend directly contacting the authorities involved. Question 24: Is a more integrated resolution and insolvency framework for banking groups feasible and desirable? If so, how should it be designed? In particular, should the Commission explore mechanisms at EU level for the extension of liability, contribution orders and pooling or substantive consolidation in relation to cross border banking groups? Of course we deem cooperation and communication between the authorities necessary. All the same, we are convinced that, when resolving a cross-border bank, separate insolvency proceedings in each Member State concerned would be preferable - from a consumer prospective - to having one collective proceeding. We are therefore not convinced that a more integrated framework, aiming at a single procedure for all Member States involved, is feasible. Newly created European authorities cause enormous extra costs. In order to reduce additional costs, the integrated resolution and insolvency competence should be assigned to a European authority, e.g. EBA.

5 - 5 - Question 28 We advocate the initiative of a mandatory framework for cooperation and exchange of information between courts and insolvency officials and//or the installation of a 'lead' administrator. In our view, a harmonised EU insolvency regime for cross-border banking groups would be expedient. In order to be able to finally resolve any problems arising in the relationship with national law in areas such as law of property, contract and commercial law, we need to take up the concept of a European group law applicable to cross-border enterprise groups. This is the only way to avoid country-specific concepts from preventing a consistent regulation in terms of insolvency law. Funding 1. Deposit guarantee funds Resorting to deposit guarantee funds to finance the regime would only be acceptable if such funding only served to guarantee deposits. For the lion's share of costs, this would therefore not be an option. 2. Risk-based key For the general allocation of costs to the participating countries, a risk-based key would have to be determined in advance. This key would have to specify in clear terms who is to pay what. Generally passing on costs to the banking sector would not be an option since crises have the propensity not only to affect individual institutions but all the banks to a greater or lesser extent. As a consequence this would put an additional load on any financial institutions that are still healthy. Quite the contrary, the financial institutions supporting the distressed banks should be supported (at least by the state for the time being) in order to stabilise the banking system. The approach to be taken with financial institutions based outside the EU but active in the EU with a risk of insolvency will also need to be determined. Sincerely, Dr. Herbert Pichler Managing Director Division Bank and Insurance Austrian Federal Economic Chamber

Response to the Commission s Communication on An EU Cross-border Crisis Management Framework in the Banking Sector

20/01/2010 ASOCIACIÓN ESPAÑOLA DE BANCA Velázquez, 64-66 28001 Madrid (Spain) ID 08931402101-25 Response to the Commission s Communication on An EU Cross-border Crisis Management Framework in the Banking