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Austrian Banks Forced to Prepare in Case of Bankruptcy

Published: November 7, 2013; 17:52 · (Vindobona)

From 2014 on, the Austrian Banks are required to start planning the emergency scenario in case of a liquidation in order to be able and react more quickly.

Austrian Banks Forced to Prepare in Case of Bankruptcy / Picture: © Flickr

In Austria, the so-called “Bankeninterventions- und –restrukturierungsgesetz“ (BIRG), a law for the intervention and restructuring of banks, which is based on the EU’s “Bank Recovery and Resolution Directive (BRRD), will become effective from January 1, 2014 on.

Compared to the EU’s BRRD, the Austrian BRIG is the lighter version and designed only as prevention from insolvencies, according to experts. Banks are obliged to create plans in case of a restructuring and/or winding-down and hand in to the financial market authority (FMA), which, as a consequence, can give instructions to improve the application. The financial institutes have to define possible trigger events for restructuring measures and determine which measures to take. Moreover, communication strategies need to be defined in order for banks to be able and react quickly. However, it is not clear what banks are required to do exactly in case of liquidation. According to the European Union, a directive is supposed to be found until the end of the year in Brussels.

Already after the nationalization of ailing bank Hypo Group Alpe Adria in 2009, then-Finance Minister Josef Pröll called for an Austrian-wide banking insolvency law. The planned downsizing fund initiated by the European Union will in all likelyhood will be only supplied sufficiently by the banks themselves in about ten to 15 years. Moreover, there has so-far no consensus been found between the Eurozone member countries. While South European countries like Spain and Italy prefer a European-wide solution for the restructuring of banks and the bailing out by the European Stability Mechanism (ESM), Germany and Austria, for instance, demand a nation-wide rescue plan. In the latter case, the respective owners of the banks and the state would be held liable in the first place. In contrast to many other Eurozone member countries that are waiting for the EU’s final decisions about restructuring measures, banks in Austria are already required to create their restructuring plans and have to update them on an annual basis.

Experts criticize that the new directive is hard to realize and point out the fact that the banks’ CEOs need to plan a possible winding-up of the financial institutes when for listed companies it is actually the responsibility of the shareholders. Yet they will hardly be able to be involved in the decision making during a general assembley since all sensitive information will be make public this way.