- On Friday, 5 July 2013, Austria's National Council (Nationalrat) adopted a draft bill proposed by the Government introducing a new statute regarding bank re-covery / resolution (Bankeninterventions- und -restrukturierungsgesetz - BIRG) and an amendment to the Austrian Banking Act regarding early intervention.
- Subject to completion of the further legislative procedures (in particular, no ob-jection by the Federal Council (Bundesrat)), the new law shall enter into force on 1 January 2014.
- The draft bill purports to anticipate recovery / early intervention tools available under the RRD1.
- Due to the current discussions at the European level, the Austrian legislator has, however, refrained from also introducing firm resolution powers (e.g. power of resolution authorities to suspend certain obligations/to restrict the enforcement of security interests/to temporarily suspend termination rights under financial contracts) and resolution tools (sale of business/bridge institution/asset separa-tion/bail-in) available under the RRD into Austrian law. The Austrian legislator argues that a national solo run regarding resolution powers/tools could poten-tially have negative effects on the financial stability and economic reputation of the Republic of Austria.
- As already indicated by the Austrian Financial Market Authority (FMA) in the pre-liminary stages of the legislative process, the lack of adequate resolution pow-ers/tools might jeopardize the FMA's ability as the resolution authority to effec-tively handle those (pre-)insolvency situations in which early intervention measures alone will not suffice to prevent banks from failing.
- Recovery plan (Sanierungsplan):
Austrian credit institutions2 have to present a recovery plan to the FMA, in which they describe measures proposed to restore their financial situation following significant deterioration. Trigger points have to be proposed by the institution it-self. The plan is subject to review by the FMA. If the FMA assesses any deficien-cies in the recovery plan or potential impediments to its implementation, it may require institutions to address this by reducing their risk profile, by enabling timely recapitalisation measures and by making changes to their funding strate-gy and governance structure.
- Resolution plan (Abwicklungsplan):
Austrian credit institutions3 have to present a resolution plan to the FMA, in which they describe measures proposed to ensure controlled resolution or reorganisation. No trigger points are specified. The plan is subject to review by the FMA. In consultation with the Austrian Central Bank (OeNB), the FMA assesses the extent to which institutions are resolvable. If the FMA determines that there are potential impediments to the resolvability of an institution, it may, where necessary and proportionate, require the institution to, inter alia, draw up ser-vice agreements to cover the provision of critical economic functions, to limit its maximum individual and aggregate exposures, to divest specific assets, and to limit or cease specific existing or proposed activities.
The BIRG will, for the time being, not introduce the firm resolution powers/tools available under RRD into Austrian law.
- Early intervention mechanism:
The FMA has to impose certain early intervention measures on an Austrian credit institution where such credit institution does not comply with the capital or li-quidity requirements under the CRR or where a violation of such requirements is imminent. Such expected violation is defined as a significant deterioration of the bank's asset, revenue, liquidity or refinancing situation. An absolute presumption of such deterioration is set at the following trigger points: the total capital ratio falling below the threshold of 8.625% or the Common Equity Tier 1 capital ratio falling below 5%.
Early intervention measures moreover apply if a credit institution upon the oc-currence of a trigger event does not take the measures described in its recovery plan or in the event that an institution does not comply with an FMA request to remedy deficiencies in its recovery/resolutions plan or potential impediments to the implementation of the recovery plan/the resolvability of that institution.
- Early intervention measures:
In addition to other measures available under the Austrian Banking Act, the FMA may apply the following early intervention measures: require the institution to draw up a recovery plan and to implement one or more of the arrangements and measures described in such plan; require the institution to improve and strengthen its risk management; (require the institution to) convene a share-holder meeting; propose the agenda of a shareholder meeting and certain deci-sions; require the institution to submit a negotiation plan providing for voluntary debt restructuring with its creditors; on-site assessment of an institution's assets and liabilities conducted by the OeNB.
- Transitional provisions:
The transitional provisions of the BIRG ensure a phased introduction of the re-quirements to draw up and present recovery/resolution plans starting with larger credit institutions /groups (i.e. with a balance sheet total of more than EUR 30 billion) and those institutions receiving direct financial aid under EFSF/ESM that will have to present their recovery plans by 1 July 2014 and their resolution plans by 31 December 2014 at the latest.
The new early intervention mechanism is expected to enter into force on 1 January 2014, alongside with the CRR requirements and capital definitions it refers to.