The FMA and the Austrian Market for Building Societies

Michael Hysek Head of Banking Supervision Financial Market Authority (FMA)

Annual Meeting of the EFBS Salzburg, 1 October 2009

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The FMA and the Austrian Market for Building Societies



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Agenda

Austrian Financial Market Authority (FMA)

Austrian Banking Sector

Austrian Market for Building Societies

Austrian Building Societies in CESEE

Crisis-related Lessons Learned



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Austrian Financial Market Authority I

FMA commenced operational activities on 1 April 2002 institution under public law

independent and integrated supervisory authority

Areas of Financial Market Supervision: Banking Supervision

Insurance Supervision

Pension Fund Supervision

Securities Supervision

Supervision of Financial Conglomerates

Supervision of Grey Capital Market



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Austrian Financial Market Authority II

Staff of the FMA: number of staff as of 31 December 2009: 290 (target figure)

two third have a university degree

personnel costs account for about 60% of the total costs of the FMA

Budget of the FMA: 2009: 39.7 mio. EUR (target figure)

costs are borne by the supervised entities themselves (government contribution: 3.5 mio. EUR p.a.)

direct and indirect allocation of the supervision costs according to accounting groups (FMA Cost Regulation)



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Organisation Chart FMA



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Austrian Financial Market Authority IV

FMA contributes towards financial market stability in Austria

FMA reinforces confidence in the ability of the Austrian financial market to function

FMA monitors and takes any measures necessary to ensure compliance with provisions of law

FMA protects investors, creditors and consumers in accordance with provisions of law

FMA issues regulations and minimum standards

FMA conducts administrative penal proceedings

strong cooperation with the Austrian National Bank (OeNB) with regard to Banking Supervision



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Number of Credit Institutions 859 (as of 30 June 2009):

Raiffeisen Credit Cooperatives 549

Volksbank Credit Cooperatives 68

Savings Banks 55

Joint Stock Banks and Private Banks 51

State Mortgage Banks 11

Building Societies 4

Other Special Purpose Banks 92

Member State Branches 29

Austrian Banking Sector I



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Austrian Banking Sector II as of 30 June 2009 Credit Institutions

(in total) Building Societies

(in total)

Aggregated Total Assets 1,058,394 mio. 22,465 mio.

Expected profit or loss on ordinary activities for 2009

2,747 mio. 74 mio.

Ø Cost-Income Ratio 62.03% 72.80%

Ø Solvency Ratio 18.19% 13.75%

Ø Core Capital Ratio 13.47% 8.06%



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Austrian Market for Building Societies I

saving with building societies is very popular in Austria

~ 5 million contracts (8.1 million inhabitants)

Austrian Building Society Act entered into force on 1 January 1994

tax importance (total bonus on building society deposits paid out to home purchase savers: 134 million EUR in 2008)

financial crisis and fear of investors have fostered the investment in home loan and savings contracts in 2009, however total financing by the building societies has declined



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as of 31 December 2007

as of 31 December 2008

Change in %

New contracts 944,435 974,240 + 3.16

Total number of Contracts 5,081,059 5,037,688 - 0.85

Building society deposits

(million EUR)

17,260 17,128 - 0.76

Total financing

(million EUR)

3,520 3,638 + 3.35

Building society loans

(million EUR)

15,609 16,712 + 7.07

Austrian Market for Building Societies II



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Austrian Market for Building Societies III

-500.000,00

1.000.000,001.500.000,002.000.000,002.500.000,003.000.000,003.500.000,004.000.000,004.500.000,005.000.000,005.500.000,00

new contracts total number of contracts

as of 31 December 2006as of 31 December 2007as of 31 December 2008



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Austrian Market for Building Societies IV

-2.000,004.000,006.000,008.000,00

10.000,0012.000,0014.000,0016.000,0018.000,0020.000,00

building society deposits(mio. EUR)

total financing (mio. EUR) building society loans(mio. EUR)

as of 31 December 2006as of 31 December 2007as of 31 December 2008



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Austrian Market for Building Societies V

building societies in Austria are special purpose credit institutions

licence is limited to certain banking activities and auxiliary activities

legal framework is laid down in the Austrian Building Society Act and in the related regulation

act and regulation are currently in amendment: scope of the licence

investment rules

risk hedging / hedging instruments

limits for building society loans

balance sheet format



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Austrian Market for Building Societies VI

Savings purposes according to law: financing housing education (as of 2005) (home) care (as of 2005)

buiding society deposits are covered by the deposit guarantee schemes (limited to 100,000 EUR as of 1 January 2010) building society terms need approval by the FMA (as regards e.g. interest rates) granting loans solely against mortgage registration (limit according to law: 80%) or other securities, loans without securities are limited to the amount of 25 000 EUR (as of 1 January 2010)



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Austrian Building Societies in CESEE

Raiffeisen Bausparkasse S-Bausparkasse Wüstenrot



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Crisis-related lessons learned I

building societies in Austria are also affected by the crisis

they need to improve their risk management procedures

focus on the core activity (financing housing) makes the system work

amendments to the legal framework in Austria form one measure

increasing transparency for the savers and consumer protection



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Crisis-related lessons learned II

6 theses for the strengthening of financial market supervision

We need 1. the globalization of the regulatory framework

2. a „European Financial Supervisory Authority“

3. a consistent and integrated supervisory approach

We have to 1. prevent the excessive use of special purpose vehicles not consolidated

and therefore not covered by risk management

2. balance system-relevant significance and acceptable risk exposure

3. ensure risk-based and anticyclical capital backing



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Documents

The FMA and the Austrian Market for Building Societies