## EXECUTIVE SUMMARY

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### Main findings
- Recovery and resolution planning are well advanced.
- Key impediments to resolution have been identified and are being addressed.
- Adequate means to ensure sufficient funding in resolution remains to be determined.
- The legal framework is sound, although additional flexibility could be provided in the bankruptcy regime.
- The authorities’ collective contingency planning for financial crisis and testing of plans should be intensified.

### Assessment scope and authorities
- Scope: institutional arrangements for recovery, resolution, and crisis management; supervision of banks’ recovery plans; legal regime for bank bankruptcy and resolution; resolution planning and impediments to resolution; resolution funding; deposit guarantee schemes; government authorities’ preparedness for financial crisis.
- Authorities relevant to this note: Ministry of Finance (MOF), Financial Market Authority (FMA), Austrian National Bank (OeNB).

### Institutional arrangements and capacity
- Institutional arrangements are generally sound, and capacity is good.
- Appropriate operational separation of supervisory and resolution functions within the FMA and good coordination between functions, and between the FMA and the OeNB.
- Ultimate decision making for supervisory and resolution matters in the FMA are unified; MOF and FMA should separate them to avoid potential conflicts of interest or the appearance of conflicts.
- FMA’s resolution function is adequately resourced, including supporting staff from within the OeNB.
- Recommendation: separate ultimate decision making for supervisory and resolution matters at the FMA Board.

### Recovery planning and testing
- Recovery planning requirements are comprehensive and well implemented.
- Recovery planning is reaching maturity in the largest banks, where plans are integrated into overall strategic and risk management.
- Management is beginning to test elements of plan implementation.
- Recommendations:
  - FMA should promote plan testing as a routine business practice among, at least, the largest banks.
  - Set minimum recovery indicator thresholds at levels well above the point of likely supervisory intervention.

### Legal regime for bankruptcy and resolution
- The legal regime for bankruptcy and liquidation of non-systemic banks, and for resolution as going-concerns of banks that may be systemic, is sound.
- Under the current bankruptcy and DGS regimes, the main function of the DGSs is to pay out the covered (insured) deposits and to liquidate the bank’s assets under a court-led process.
- The regime for banks that are systemic in failure adheres to the internationally agreed standard and provides a range of options: bail-in of creditors to recapitalize a failing bank; or transfer of critical assets and liabilities to an acquiring institution or to a temporary bridge institution owned by the government, for subsequent sale.
- Recommendations:
  - MOF should consider recommending to the Ministry of Justice (MOJ) to make explicitly available the ability to transfer a non-systemic bank’s covered deposits and its sound assets to an acquirer under the bankruptcy regime.
  - Consider steps to enhance MOF preparedness to provide government support as a last resort in resolving a bank that is systemic in failure.

### Resolution planning
- Resolution planning for banks that may be systemic in failure is well advanced.
- Key remaining challenges:
  - Ensure most banks have issued a sufficient volume of bail-inable liabilities so the FMA can recapitalize by bailing in those liabilities.
  - For a smaller number of banks, ensure the FMA can transfer critical assets and liabilities to an acquirer or a bridge institution.
  - For all banks in resolution, ensure the bank can maintain sufficient liquidity before, during, and subsequent to resolution.
- Good progress is being made on bail-inable liabilities and transferability of critical assets and liabilities.
- Remaining challenge: ensuring a bank in resolution can maintain sufficient liquidity.

### Resolution funding and liquidity options
- Options for ensuring a bank in resolution can maintain sufficient liquidity are limited:
  - The bank’s own capacity and any liquidity related to the application of resolution tools.
  - Emergency Liquidity Assistance (ELA) by OeNB.
  - Accessing the resources of the European Single Resolution Fund (SRF).
  - In the last resort, government support.
- Recommendations:
  - OeNB’s ELA framework can be enhanced by formulating a policy on lending to a bank in resolution and by expanding the types of assets deemed eligible as collateral for ELA.
  - FMA should continue efforts to gain clarity on the criteria, terms, and conditions for accessing the SRB-controlled SRF.
  - MOF should consider scope to provide funding in resolution and take steps to be able to do so without requiring additional legislation at time of need.

### Deposit protection
- Deposit guarantee arrangements are sound and have suitable funding.
- As a last resort, the schemes can borrow, and the MOF may guarantee such borrowings.
- Recommendation: MOF should take steps to be able to guarantee such borrowings without requiring additional legislation at time of need.
- The capacity to rapidly pay out deposits is in place and is being tested.

### Contingency planning and crisis management
- Institutional arrangements for ensuring crisis preparedness can be improved.
- Recommendation: a senior interagency body involving MOF, FMA, and OeNB should be assigned a mandate to:
  - Ensure each authority has an up-to-date contingency plan.
  - Ensure individual authority plans are of comparable character and quality and dovetail into a coherent national plan.
  - Ensure all three authorities have plan testing programs that feed back into plan improvements.
  - Ensure interagency tests are regularly conducted.
- Additional recommendations include updating crisis management manuals, developing contingency plans where missing, adopting and expanding annual testing programs, updating mandate of DSG and establishing a regular meeting schedule.

### Key statistics and financial sector structure (selected)
- Sparkassen sector: €236 billion in total assets (24 percent of total bank assets) and €40 billion in covered (insured) deposits (20 percent of covered deposits) in Austria. Data is as of year-end 2018.
- Raiffeisen sector: €356 billion in total assets (36 percent of bank assets) and €72.6 billion in covered deposits (33 percent of covered deposits).
- Volksbanken (VB) sector: €30 billion in total assets (4 percent of bank assets) and €14.3 billion in covered deposits (7 percent of covered deposits).
- Ownership and organization details preserved as described in the note (e.g., Erste Group Bank AG (EGB) ownership percentages and sectoral IPS arrangements).

### Summary of Key Recommendations (selected, with authorities and timing)
- 1. Separate ultimate decision making for supervisory and resolution matters at the FMA Board. Authority: FMA, MOF. Time: I.
- 2. Ensure managers of bridge institutions and asset management vehicles benefit from legal protections comparable to those available to FMA staff. Authority: MOF. Time: NT.
- 3. Set minimum recovery indicator thresholds at levels well above the point of likely supervisory intervention. Authority: BSD. Time: I.
- 4. Testing implementation of recovery plans should be promoted as a routine business practice. Authority: BSD. Time: NT.
- 5. Explicitly provide for purchase and assumption transactions in the bankruptcy regime. Authority: MOF/MOJ. Time: NT.
- 6. Agree on a policy on how to apply the elements of the FOLTF determination. Authority: BSD, BRD. Time: I.
- 7. Formulate internal written policies and procedures as to when and how the government stabilization tools might be utilized. Authority: MOF. Time: I.
- 8. Continue efforts to fully articulate MREL and subordination requirements and strive to ensure all banks meet their MREL requirements as soon as possible. Authority: BRD. Time: I.
- 9. Discuss with OeNB regarding provision of ELA and continue to engage the SRB on policies and procedures for use of the SRF as a source of liquidity funding in resolution. Authority: BRD. Time: I.
- 10. Adopt internal policy guidance for granting ELA in specific circumstances to a bank in resolution that includes criteria to be evaluated in assessing the credibility of a recapitalization plan and expanding eligible collateral beyond that used for Eurosystem monetary policy operations. Authority: OeNB. Time: I.
- 11. Explore mechanisms under which a MOF guarantee or other arrangements could be prepositioned to support ELA as a contingency. Authority: OeNB, MOF. Time: I.
- 12. Seek legislation for standing authority to implement government stabilization measures. Authority: MOF. Time: NT.
- 13. Explore mechanisms under which a MOF guarantee could be prepositioned to support borrowing by either DGS. Authority: MOF. Time: NT.
- 14. Update the crisis management manual and related contingency plans. Authority: FMA. Time: NT.
- 15. Develop a crisis management manual and contingency plan. Authority: MOF. Time: NT.
- 16. Adopt and expand annual contingency plan testing programs. Authority: MOF, FMA, OeNB. Time: NT.
- 17. Update the mandate of the DSG and establish a regular meeting schedule. Authority: MOF, FMA, OeNB. Time: I.
- 18. Assign a senior-level interagency body the mandate to ensure adequate contingency planning and testing of plans at the individual authority and national level. Authority: MOF. Time: I.

*Source: EXECUTIVE SUMMARY — Technical Note on bank resolution and crisis management arrangements (Austria).*

### EXECUTIVE SUMMARY __________________________________________________________________________ 5

### EXECUTIVE SUMMARY

### Main findings
- Recovery and resolution planning are well advanced.
- Key impediments to resolution have been identified and are being addressed.
- Adequate means to ensure sufficient funding in resolution remains to be determined.
- The legal framework is sound, although additional flexibility could be provided in the bankruptcy regime.
- The authorities’ collective contingency planning for financial crisis and testing of plans should be intensified.

### Assessment scope and authorities
- Scope: institutional arrangements for recovery, resolution, and crisis management; supervision of banks’ recovery plans; legal regime for bank bankruptcy and resolution; resolution planning and impediments to resolution; resolution funding; deposit guarantee schemes; government authorities’ preparedness for financial crisis.
- Authorities relevant to this note: Ministry of Finance (MOF), Financial Market Authority (FMA), Austrian National Bank (OeNB).

### Institutional arrangements and capacity
- Institutional arrangements are generally sound, and capacity is good.
- Appropriate operational separation of supervisory and resolution functions within the FMA and good coordination between functions, and between the FMA and the OeNB.
- Ultimate decision making for supervisory and resolution matters in the FMA are unified; MOF and FMA should separate them to avoid potential conflicts of interest or the appearance of conflicts.
- FMA’s resolution function is adequately resourced, including supporting staff from within the OeNB.
- Recommendation: separate ultimate decision making for supervisory and resolution matters at the FMA Board.

### Recovery planning and testing
- Recovery planning requirements are comprehensive and well implemented.
- Recovery planning is reaching maturity in the largest banks, where plans are integrated into overall strategic and risk management.
- Management is beginning to test elements of plan implementation.
- Recommendation: FMA should promote plan testing as a routine business practice among, at least, the largest banks.
- Recommendation: set minimum recovery indicator thresholds at levels well above the point of likely supervisory intervention.

### Legal regime for bankruptcy and resolution
- The legal regime for bankruptcy and liquidation of non-systemic banks, and for resolution as going-concerns of banks that may be systemic, is sound.
- Under the current bankruptcy and DGS regimes, the main function of the DGSs is to pay out the covered (insured) deposits and to liquidate the bank’s assets under a court-led process.
- The regime for banks that are systemic in failure adheres to the internationally agreed standard and provides a range of options: bail-in of creditors to recapitalize a failing bank; or transfer of critical assets and liabilities to an acquiring institution or to a temporary bridge institution owned by the government, for subsequent sale.
- Recommendation: MOF should consider recommending to the Ministry of Justice (MOJ) to make explicitly available the ability to transfer a non-systemic bank’s covered deposits and its sound assets to an acquirer under the bankruptcy regime.
- Recommendation: consider steps to enhance MOF preparedness to provide government support as a last resort in resolving a bank that is systemic in failure.

### Resolution planning
- Resolution planning for banks that may be systemic in failure is well advanced.
- Key remaining challenges:
  - Ensure most banks have issued a sufficient volume of bail-inable liabilities so the FMA can recapitalize by bailing in those liabilities.
  - For a smaller number of banks, ensure the FMA can transfer critical assets and liabilities to an acquirer or a bridge institution.
  - For all banks in resolution, ensure the bank can maintain sufficient liquidity before, during, and subsequent to resolution.
- Good progress is being made on bail-inable liabilities and transferability of critical assets and liabilities.
- Remaining challenge: ensuring a bank in resolution can maintain sufficient liquidity.

### Resolution funding and liquidity options
- Options for ensuring a bank in resolution can maintain sufficient liquidity are limited:
  - The bank’s own capacity and any liquidity related to the application of resolution tools.
  - Emergency Liquidity Assistance (ELA) by OeNB.
  - Accessing the resources of the European Single Resolution Fund (SRF).
  - In the last resort, government support.
- Recommendations:
  - OeNB’s ELA framework can be enhanced by formulating a policy on lending to a bank in resolution and by expanding the types of assets deemed eligible as collateral for ELA.
  - FMA should continue efforts to gain clarity on the criteria, terms, and conditions for accessing the SRB-controlled SRF.
  - MOF should consider scope to provide funding in resolution and take steps to be able to do so without requiring additional legislation at time of need.

### Deposit protection
- Deposit guarantee arrangements are sound and have suitable funding.
- As a last resort, the schemes can borrow, and the MOF may guarantee such borrowings.
- Recommendation: MOF should take steps to be able to guarantee such borrowings without requiring additional legislation at time of need.
- The capacity to rapidly pay out deposits is in place and is being tested.

### Contingency planning and crisis management
- Institutional arrangements for ensuring crisis preparedness can be improved.
- Recommendation: a senior interagency body involving MOF, FMA, and OeNB should be assigned a mandate to:
  - Ensure each authority has an up-to-date contingency plan.
  - Ensure individual authority plans are of comparable character and quality and dovetail into a coherent national plan.
  - Ensure all three authorities have plan testing programs that feed back into plan improvements.
  - Ensure interagency tests are regularly conducted.
- Additional recommendations include updating crisis management manuals, developing contingency plans where missing, adopting and expanding annual testing programs, updating mandate of DSG and establishing a regular meeting schedule.

### Key statistics and financial sector structure (selected)
- Sparkassen sector: €236 billion in total assets (24 percent of total bank assets) and €40 billion in covered (insured) deposits (20 percent of covered deposits) in Austria. Data is as of year-end 2018.
- Raiffeisen sector: €356 billion in total assets (36 percent of bank assets) and €72.6 billion in covered deposits (33 percent of covered deposits).
- Volksbanken (VB) sector: €30 billion in total assets (4 percent of bank assets) and €14.3 billion in covered deposits (7 percent of covered deposits).
- Ownership and organization details preserved as described in the note (e.g., Erste Group Bank AG (EGB) ownership percentages and sectoral IPS arrangements).

### Summary of Key Recommendations (selected, with authorities and timing)
- 1. Separate ultimate decision making for supervisory and resolution matters at the FMA Board. Authority: FMA, MOF. Time: I.
- 2. Ensure managers of bridge institutions and asset management vehicles benefit from legal protections comparable to those available to FMA staff. Authority: MOF. Time: NT.
- 3. Set minimum recovery indicator thresholds at levels well above the point of likely supervisory intervention. Authority: BSD. Time: I.
- 4. Testing implementation of recovery plans should be promoted as a routine business practice. Authority: BSD. Time: NT.
- 5. Explicitly provide for purchase and assumption transactions in the bankruptcy regime. Authority: MOF/MOJ. Time: NT.
- 6. Agree on a policy on how to apply the elements of the FOLTF determination. Authority: BSD, BRD. Time: I.
- 7. Formulate internal written policies and procedures as to when and how the government stabilization tools might be utilized. Authority: MOF. Time: I.
- 8. Continue efforts to fully articulate MREL and subordination requirements and strive to ensure all banks meet their MREL requirements as soon as possible. Authority: BRD. Time: I.
- 9. Discuss with OeNB regarding provision of ELA and continue to engage the SRB on policies and procedures for use of the SRF as a source of liquidity funding in resolution. Authority: BRD. Time: I.
- 10. Adopt internal policy guidance for granting ELA in specific circumstances to a bank in resolution that includes criteria to be evaluated in assessing the credibility of a recapitalization plan and expanding eligible collateral beyond that used for Eurosystem monetary policy operations. Authority: OeNB. Time: I.
- 11. Explore mechanisms under which a MOF guarantee or other arrangements could be prepositioned to support ELA as a contingency. Authority: OeNB, MOF. Time: I.
- 12. Seek legislation for standing authority to implement government stabilization measures. Authority: MOF. Time: NT.
- 13. Explore mechanisms under which a MOF guarantee could be prepositioned to support borrowing by either DGS. Authority: MOF. Time: NT.
- 14. Update the crisis management manual and related contingency plans. Authority: FMA. Time: NT.
- 15. Develop a crisis management manual and contingency plan. Authority: MOF. Time: NT.
- 16. Adopt and expand annual contingency plan testing programs. Authority: MOF, FMA, OeNB. Time: NT.
- 17. Update the mandate of the DSG and establish a regular meeting schedule. Authority: MOF, FMA, OeNB. Time: I.
- 18. Assign a senior-level interagency body the mandate to ensure adequate contingency planning and testing of plans at the individual authority and national level. Authority: MOF. Time: I.
- Timing legend preserved: C–Continuous; I–Immediate: within 1 year; NT–near term: 1 to 3 years; MT–medium term: 3–5 years.

*Source: EXECUTIVE SUMMARY — Technical Note on bank resolution and crisis management arrangements (Austria).*

### 6.      Austrian banks and the authorities were early adopters of recovery and resolution

### 6.      Austrian banks and the authorities were early adopters of recovery and resolution planning

### Early adoption and implementation
- Under the Bank Intervention and Restructuring Act, effective January 1, 2014, Austrian banks and groups with over €30 billion in assets were required to prepare both recovery and resolution plans by mid-year and year-end 2014, respectively.
- The recovery and resolution planning agenda was guided by the Key Attributes originally promulgated in late 2011.
- The industry and authorities were among the first to pursue a recovery and resolution planning agenda, reflected in good progress on recovery and resolution planning in Austria.

### Recent crisis experience — overview
- Three instances of bank failures in Austria during and subsequent to the global financial crisis were still undergoing resolution at the time of the current FSAP:
  - Hypo Alpe Adria Bank International AG (HB Intl) → HETA Asset Resolution AG (HETA) wind-down entity.
  - Kommunalkredit Austria AG (KA) → KA Finanz AG (KF) wind-down entity.
  - Österreichische Volksbanken AG (VBAG) → immigon wind-down entity and ongoing restructuring of the VB sector.
- All three cases were subject to EC-approved restructuring and state aid programs.
- The remaining element of each case is a wind-down entity established under provisions of the BaSAG and the GSA, provisions not found in the BRRD, which allow an institution to apply to be converted into a wind-down entity (Art. 162 BaSAG — limited application).

### HETA (Hypo Alpe Adria → HETA) — key facts and timeline
- HB Intl nationalized by the government in December 2009; at that time it owned banking or leasing subsidiaries in 11 Southeastern European (SEE) countries.
- EC provisional State Aid decision in December 2009; final decision rendered in September 2013 requiring sale of Austrian and SEE operations and other restructuring measures.
- Government passed the GSA, effective August 2014, to facilitate wind-down; HETA became a wind-down entity under this legislation in October 2014 to hold residual assets and liabilities.
- February 2015: asset quality review by management determined HETA had significant negative capital; government (100 percent owner) decided not to provide further government support.
- BRRD rendered a “Fail or Likely to Fail” (FOLTF) decision on March 1, 2015 that HETA was not viable, and imposed a 15-month debt moratorium; actions taken under BaSAG.
- Preliminary decision on bailing-in creditors under BaSAG taken in April 2016.
- Valuation process (Valuation 2 under BRRD and BaSAG) and administrative appeals completed; bail-in decision finalized in May 2017.
  - Under the finalized bail-in decision: the shareholder (the government), holders of other capital instruments, and subordinated debtholders were written off and other creditors were written down to 64 percent.
  - Upon write-off of the shareholder, the FMA Board as NRA took control of the wind-down entity.
  - Bailed-in creditors have subsequently been written up to 86 percent as asset realizations exceeded projections in the supporting valuation.
- Steps are being taken to substantially shorten the lengthy period between preliminary and final bail-in decisions.

### KA Finanz (Kommunalkredit Austria → KF) — key facts and timeline
- KA nationalized in November 2008; at nationalization it was the seventh largest Austrian bank, with 51 percent of shares owned by Österreichische Volksbanken AG and 49 percent by Dexia Crédit Local.
- March 2011: EC rendered a State Aid decision approving a restructuring plan dividing strategic long-run assets to KA and non-strategic assets to KF; KA to be sold.
- Amended State Aid decision in July 2013 due to inability to sell KA within original timeframe: KA ceased new banking business and ran down operations while sale attempts continued.
- September 2015: KA concluded sale of some 40 percent of its assets; remaining assets merged into KF, which retained a banking license.
- June 2017: KF applied to the FMA to convert into a wind-down entity; application approved in September 2017.

### immigon (VBAG → immigon) — key facts and timeline
- VBAG was the central institution for the Volksbanken sector; received various public support.
- September 2012: EC rendered a State Aid decision approving recapitalization and restructuring of VBAG (public support resulted in a 43 percent equity participation by the government).
- ECB Comprehensive Assessment in 2014 determined a significant shortfall in capital remained.
- May 2015: shareholders resolved to split VBAG by transferring to Volksbanken Wien assets/liabilities/functions associated with its central institution role and converting remaining business into a wind-down entity; VBAG applied to the FMA for conversion into a wind-down entity and FMA approved.
- Amended State Aid decision rendered and transaction effected in July 2015.
  - The transaction and prior government support led to the government having a 25 percent equity participation in Volksbanken Wien; upon repayment this equity participation will be extinguished.
  - The transaction resulted in the merger of the 50 primary banks into the current Volksbanken sector structure.
- immigon completed wind-down of its asset portfolio in January 2019; liabilities are expected to be paid in full when due over the next several years.
  - Early repayment is not possible due to negative tax consequences for the creditors.

### Institutional framework — roles, organization, and cooperation
- ECB and SRB roles in Austria:
  - Exercise of direct supervision powers by the ECB and resolution planning and decision-making powers by the SRB over institutions under their remits.
  - Oversight of National Competent Authorities (NCAs) by the ECB and National Resolution Authorities (NRAs) by the SRB.
  - Direct exercise of powers, if necessary, to ensure consistent application of supervisory and resolution standards. To date the ECB and the SRB have not exercised such powers in Austria.
- Domestic authorities:
  - FMA, OeNB, and MOF are the domestic authorities relevant to recovery and resolution.
  - FMA is both Austria’s NCA and NRA; it participates in ECB Joint Supervisory Teams (JSTs) and SRB Internal Resolution Teams (IRTs).
  - FMA, as NRA, executes all failure resolution actions, including those decided by the SRB, and monitors resolution entities.
  - OeNB (national central bank) contributes to FMA’s supervisory and resolution functions and participates in JSTs and IRTs.
  - MOF’s Directorate General for Economic Policy, Financial Markets, and Customs Duties deals with economic and financial policy and has roles related to extraordinary funding needs in crises.
- FMA internal organization and decision making:
  - Two-person FMA Executive Board (FMA Board) takes decisions on both supervisory and resolution matters for HP-LSIs and LSIs under FMA authority and provides input on SIs and other banks under ECB/SRB remit.
  - Operational separation: Banking Supervision Department (BSD) reports directly to FMA Board; BSD has five divisions including supervision of all banks and supervision of Deposit Guarantee Schemes (DGSs).
  - Banking Resolution Department (BRD), established to perform FMA’s NRA tasks, reports separately and directly to FMA Board and comprises two teams: resolution planning and resolution execution.
    - Neither department has automatic access to the files of the other; access is provided when necessary to fulfill respective roles.
  - FMA Board takes key resolution-related decisions; others are delegated to the BRD. Decisions reserved to the FMA Board include approving resolution plans, choice and application of resolution tools, appointment of valuation auditors, ordering banks to hold specific amounts of own fund and liabilities eligible for bail-in, and significant decisions in ongoing resolution activities.
- OeNB organizational separation:
  - Financial Stability, Banking Supervision and Statistics group (headed by a vice governor) includes Department for the Supervision of SIs, Department for Financial Stability and for the Supervision of LSIs, and the Statistics Department.
  - The Office for Specific Bank Resolution Matters (REFBA) of the Statistics Department engages with and supports the FMA as NRA.
- Cooperation:
  - High degree of cooperation within and between FMA and OeNB, driven by BRRD transposition via BaSAG and extensive inter-agency crisis work since the global financial crisis.

### Institutional resources and capabilities
- BRD staffing and support:
  - BRD permanent staff: 24 (department head, 12 staff in resolution planning team, 10 in resolution execution team, and 1 support staff).
    - Among resolution planning team staff: five focused on resolution planning for SIs and seven for LSIs; they examine recovery plans for 140 Austrian banks to identify options that could adversely impact resolvability.
    - Among resolution execution team staff: five focused on supervision and monitoring of the three wind-down entities; others prepare to exercise resolution options and implement resolution tools.
  - BRD is supported by OeNB’s REFBA, which has a staff of six working full-time on resolution matters and serves as focal point between BRD and other OeNB units.
  - BRD regularly utilizes outside experts:
    - Contingency contracts with five audit firms to undertake required valuations (Valuation 2).
    - Contingency contracts with five law firms to handle legal issues in resolution execution.
    - Considering contracting for investment banking expertise (e.g., merger and acquisition).
  - Appropriately skilled staff in other FMA departments have been identified for temporary secondment to the BRD.
  - Further staff increases are not envisioned at this time.
- DGS reorganization:
  - Deposit guarantee scheme (DGS) arrangements reorganized on January 1, 2019.
  - Four of the previous five sectoral DGSs were, in effect, merged into Einlagensicherung AUSTRIA Ges.m.b.H. (ESA), and the funds of those four schemes were transferred to ESA.
  - The savings bank (Sparkassen) sector continues its own DGS, Sparkassen-Haftungs GmbH (S-Haftung), an institutional protection scheme (IPS) recognized by the FMA pursuant to the ESAEG as both an IPS and a DGS.
  - Both ESA and S-Haftung are supervised by the FMA.
- Legal protections and limitations:
  - Under the FMABG, the FMA, its employees, and bodies are not liable toward an injured party; Federal Government reimbursement under the Public Liability Act can trigger reimbursement claims against the FMA’s bodies or employees if gross negligence is found.
  - Under the BaSAG, reimbursement is further limited when administering tasks concerning banking resolution; reimbursement can only be demanded from FMA bodies/employees and OeNB bodies/employees if they intentionally committed a breach of law.
  - These protections also apply to seconded staff and external third-party experts if hired or working under the direction of the FMA, but do not apply to managers of bridge institutions or asset management vehicles unless FMA staff fulfill these functions.
  - Managers of bridge institutions and asset management vehicles may act to execute a resolution scheme directed by the FMA Board as NRA.
  - Recommendation: the FMA should ensure that managers benefit from protections comparable to those available to FMA staff.

### Governance and policy recommendations highlighted
- Consider separating ultimate decision making for supervisory and resolution matters in the FMA:
  - The BRRD permits Member States to have the resolution authority be the competent authority for supervision exceptionally, but requires structural arrangements to ensure operational independence and avoid conflicts of interest.
  - Operational separation of BSD and BRD largely meets requirements, and FMA structure aligns with EC law and guidance, but unification of ultimate decision making at the FMA Board could give rise to potential conflicts of interest or the appearance thereof.
  - Example conflict: supervisory function may advocate resolution of a failing LSI as a going-concern while resolution function may favor bankruptcy proceedings; both decision types are reserved to the FMA Board acting in dual capacities (NCA and NRA), creating potential conflicts and removing a national backstop envisaged by BRRD when an NCA fails to take timely action.
  - Although authorities report no conflicts of interest have arisen in practice and mitigating factors exist (e.g., draft NRA decisions provided to SRB for review), structural separation of ultimate decision making should be considered to avoid potential conflicts and preserve the NRA backstop function.
- Ensure legal protections extend to managers of bridge institutions and asset management vehicles to provide protections comparable to those available to FMA staff when they act under the direction of the FMA Board as NRA.

_This summary is derived from Chapter 6 and Part 2 (selected sections) of the source PDF._

### 20.      Summary of recommendations:

### 20.      Summary of recommendations:

### Governance and supervisory decision-making
- Recommendations:
  - The MOF and the FMA should consider separating ultimate decision making for supervisory and resolution matters at the level of the FMA Board.
  - The FMA should ensure that the managers of bridge institutions and asset management vehicles benefit from protections comparable to those available to FMA staff.

### Recovery planning: framework and practice
- Institutional roles and coordination:
  - Supervision of Austria banks, including recovery planning and early intervention, is a joint exercise between the ECB, the FMA, and the OeNB.
  - ECB-led JSTs are responsible for supervision of SIs; the FMA’s BSD and the OeNB’s Department for Financial Stability and the Supervision of LSIs supervise HP-LSIs and other LSIs.
  - JSTs are led by ECB coordinators, with a sub-coordinator and staff from the FMA and the OeNB; SI recovery plan assessment is supported by an ECB horizontal specialized expertise team.

- Evolution and guidance:
  - Guidelines on recovery planning requirements, as specified in the BRRD, were first disseminated in 2014 and have been regularly enhanced and refined.
  - The FMA/OeNB joint guidance has been updated to reflect transposition of the BRRD in Austria and subsequent EBA and ECB guidelines and standards; additional guidance has been provided via workshops and meetings.

- Scope and categorization of recovery plans:
  - SIs, HP-LSIs, and the central institutions of IPSs are required to prepare full-scope plans; other banks may prepare plans under simplified obligations.
  - The FMA’s Bank Recovery Plan Regulation (BaSaPV) clusters banks into four categories and may grant simplified obligations regarding: (i) the number of indicators; (ii) the number of stress scenarios; and (iii) the frequency of updates.
  - Category details:
    - Category 1 (consolidated assets under €350 million): minimum use of six indicators addressing capital, liquidity, profitability, and nonperforming loan growth; envision a systemic stress scenario; update plans every other year.
    - Category 2 (institutions not in category 1 with consolidated total assets up to €5 billion with cross-border business not exceeding 30 percent of total assets and interbank business not exceeding 50 percent of total assets): must employ an idiosyncratic stress scenario in addition to the systemic stress scenario and must update plans annually.
    - Category 3 (banks not in categories 1, 2, or 4): additionally required to employ a combined systemic/idiosyncratic scenario and to use more indicators.
    - Category 4 (central institutions of IPSs): required to draw up full-scope plans.
  - IPS recovery plans: central institution must prepare a full-scope recovery plan covering (i) the IPS itself; (ii) the central institution of the IPS; (iii) subsidiaries of the central institution; and (iv) the individual IPS members. IPS recovery plans describe recovery measures at the level of individual IPS members but at a less granular level than an individual recovery plan; BSD can request individual IPS members to prepare plans where necessary.

- Assessment and implementation experience:
  - SIs have prepared recovery plans annually since 2015; ECB JSTs lead assessments with substantial BSD and OeNB support and a specialized unit at the ECB.
  - Recovery plans for SIs are shared with the SRB, the BRD and EU NRAs outside the BU; to date no material deficiencies in plans of Austrian SIs have been identified.
  - All LSIs, including IPSs, submitted initial recovery plans in 2015. Large and medium LSIs (categories 2-4) have updated plans at least three times; small LSIs (category 1) have updated at least once.
  - BSD/OeNB use an automated system to process, analyze and identify red flags and deficiencies; assessments using ECB criteria (completeness, quality, credibility) have routinely led to written requests for improvements. Number of material deficiencies has decreased since 2015.
  - Common remaining deficiencies: credibility of overall recovery capacity of LSIs; description and severity of stress scenarios; description of recovery options.
  - Testing of plans: recovery planning is reaching maturity and systematic testing (“dry-runs”) has begun in the largest banks. The FMA should develop and refine guidance to institutionalize testing as routine practice.

### Recovery triggers and early intervention
- Thresholds and notification:
  - The FMA/OeNB set thresholds (triggers) for when an LSI must decide whether to take recovery actions; in some instances these correspond to minimum prudential requirements.
  - Example: the LSI threshold with respect to the total capital ratio is set at 250 basis points above the bank’s total capital requirement, excluding buffers. As buffers aggregate 250 basis points for most LSIs, the minimum threshold requirement is at a same level that normally would trigger supervisory intervention for breach of a buffer.
  - Setting thresholds at the level of the regulatory requirement may render the supervisory notification requirement redundant when a threshold indicator has been breached.
  - The BSD currently follows EBA guidance but should consider setting minimum thresholds at levels well above the point of likely supervisory intervention.
    - Note: BSD already applies this for the Liquidity Coverage Ratio where the minimum threshold is 110 percent and the minimum regulatory requirement is 100 percent.

- Intervention powers and timelines:
  - The BaSAG provides powers to intervene to improve recovery plans. The ECB and the FMA are responsible for applying intervention measures to SIs and LSIs respectively (certain uses of FMA powers must be communicated to the ECB).
  - When material deficiencies are identified, the JST or the FMA Board, as NCA, requires the bank to submit an improved recovery plan within no more than three months. If not remedied, the supervisor can direct the bank to make specific changes to the plan.
  - The BaSAG permits supervisors to require directors to: (i) execute measures set out in the recovery plan within a specific timeframe; (ii) update the recovery plan and its envisioned measures; and (iii) identify measures and draw up an action plan to overcome identified problems within a specific timetable. These powers are adequate and have not yet been used.

- Recommendations:
  - The BSD should consider setting minimum recovery indicator thresholds at levels well above the point of likely supervisory intervention.
  - The BSD should develop and refine guidance on testing recovery plan implementation (e.g., via dry-runs) to institutionalize plan testing as a routine business practice in banks.

### Legal regime for bankruptcy and resolution: structure and gaps
- Dual frameworks:
  - Bank failures are governed by bankruptcy proceedings (Insolvency Code (IO) as modified by the BWG) for non-systemic failures and by resolution under the BaSAG for potentially systemic failures.

- Bankruptcy proceedings:
  - Court-led process: in material insolvency, after an FOLTF assessment by the BSD and a determination by the FMA Board as NRA that use of resolution tools is not in the public interest, the FMA Board as NCA may petition the court to open bankruptcy proceedings.
  - Material insolvency: generally illiquidity (inability to make payments) or over-indebtedness (assets insufficient to cover liabilities).
  - If the court opens bankruptcy proceedings it appoints a bankruptcy administrator in consultation with the FMA; the administrator divests the bank’s assets to maximize creditors’ recovery.
  - Opening bankruptcy proceedings triggers a deposit payout and the relevant DGS, subrogating covered depositors’ claims, becomes a preferred creditor.
  - The FMA is a party to the proceedings with full procedural rights.
  - Creditor hierarchy: uncovered deposits of households and SMEs are given preference to a broad class of general creditors; covered deposits and DGSs in subrogation have higher ranking.
  - Limitations: under the bankruptcy regime there is no scope to transfer covered deposits and sound assets to an acquirer (P&A) — DGSs can only pay out deposits and assets are sold by the bankruptcy administrator. Compared to purchase-and-assumption (P&A) transactions, payouts can reduce realizable asset value, inconvenience counterparties, and raise DGS cash outlays and long-run costs.
  - Recommendation: The MOF should consider recommending to the MOJ to explicitly provide for P&A transactions in the bankruptcy regime to make the tool available for use in all bank failures.

- Resolution regime for systemic banks:
  - Available tools (as in BRRD / Key Attributes): (i) bridge institution; (ii) sale of business; (iii) bail-in (write-down and/or convert eligible liabilities); (iv) asset separation (AMV).
  - These tools and powers can be used by BRD/SRB and implemented by the FMA/BRD.
  - Conditions for use:
    - (i) the bank is deemed to be FOLTF;
    - (ii) the BRD/SRB in consultation with the BSD/ECB determines there are no reasonable prospects that sufficient and timely private sector measures will be taken; and
    - (iii) use of the resolution powers is deemed by the BRD/SRB to be in the public interest.
  - The FOLTF determination is primarily the BSD/ECB responsibility but the BRD/SRB can determine FOLTF as a safeguard.
  - The BSD’s or BRD’s judgment must be approved by the FMA board, acting as NCA or NRA.
  - Public interest determination should consider whether bankruptcy would ensure the objectives of resolution (continuity of critical functions, financial stability, safeguarding public funds, protecting covered depositors and covered investors, protecting client funds and assets).
  - The OeNB provides an opinion on public interest when requested by the BRD to support decision making; the BRD should routinely seek such an opinion.

- Coordination and discretion:
  - The BSD and the BRD have adopted internal procedures for coordination but have not agreed on a policy for applying discretionary elements in the FOLTF determination.
  - The two bodies established a working group to address FOLTF matters and should agree on a policy promptly.
  - Key objective: ensure an FOLTF assessment is triggered well prior to balance sheet insolvency to promote better outcomes for creditors in bankruptcy proceedings if resolution is not used.

*Source: 1autea2020002 - 20.      Summary of recommendations*

### 39.      Procedures for use of resolution powers and tools are well established. The FMA Board

### Procedures for use of resolution powers and tools are well established. The FMA Board

### Procedures and legal process for emergency resolution
- The FMA Board as NRA, on the BRD’s advice, initiates resolution actions by means of an emergency administrative decision (Mandatsbescheid) without a formal preceding investigation and without a requirement for any ex ante action by the court.  
- The decision is issued by means of an edict published on the FMA’s website and is deemed effective upon publication toward the bank and all parties whose rights may be affected.  
- Affected parties (e.g., shareholders, creditors) may challenge the decision within three months of publication; a challenge does not suspend the effects of the decision.  
- Upon expiry of the three months, the BRD will officially initiate an investigation, address any challenges against the emergency administrative decision, and the FMA Board as NRA will render a final decision by means of an administrative decision (Vorstellungsbescheid), also announced by edict on the FMA website.  
- Affected parties then have the right to appeal in the Federal Court system. If a resolution decision is repealed or amended by a court, it generally will not remove the legal effect of the administrative decision unless removal does not place the resolution objectives at risk and would not constitute a threat to the interests of third parties (such as purchasers of assets and liabilities of the bank in resolution).  
- If the legal effect cannot be removed, an affected party may pursue a claim against the federal government for compensation of any unlawfully caused disadvantages as a result of the administrative decisions issued by the FMA Board.

### SRB decisions and interaction with national appeals
- Most SRB decisions relevant to Austria must be implemented by the FMA, as NRA, and thus are subject to challenge locally.  
- Certain SRB decisions are subject to challenge to the SRB’s Appeals Panel; all SRB decisions and those of the Appeals Panel are subject to challenge at the European Court of Justice (ECJ).  
- There is legal uncertainty as to the interaction between simultaneous jurisdictions of appeal (national courts, SRB Appeals Panel, ECJ). It should be clarified whether an appeal to the SRB Appeals Panel or the ECJ suspends the appeal period in the national courts until a final European judgement, or whether national judicial proceedings should be stayed until European authorities have rendered a ruling.  
- SRB decisions implemented by the FMA should be given effect as any other FMA administrative decision and should not be suspended by virtue of an appeal.

### Powers to write down and convert capital instruments
- Under the BaSAG, a bank’s equity can be written down or off, and additional Tier 1 and Tier 2 capital instruments can be converted into equity or written down or off.  
- The FMA Board, as NCA, on the BSD’s advice, can write down/convert to ensure a bank’s viability. The FMA Board, as NRA, on the BRD’s advice, can do so prior to or simultaneously with taking resolution action and must do so where extraordinary public support is required.  
- Prior to exercising write-down/convert powers, the BRD may obtain a professional third-party valuation to determine the extent of losses on assets to ensure they are fully absorbed by existing capital instruments. If not expedient, the BRD can perform its own provisional valuation subject to adjustment based on an ex post third-party definitive valuation. (The so-called Valuation 3.)

### Ministerial consent, extraordinary public support, and government stabilization tools
- The finance minister must provide written approval prior to the FMA Board, as NRA, taking any actions that may have a direct fiscal impact or which have systemic implications. The BRD and MOF are working to an agreed interpretation of these requirements and should reach agreement as soon as possible.  
- In extraordinary circumstances where resolution tools are inadequate, the minister may, in consultation with the OeNB and the FMA Board (acting as both NCA and NRA), direct use of government stabilization tools involving equity support from the state and/or temporary public ownership.  
- The MOF should formulate internal written policies and procedures as to when and how the government stabilization tools might be utilized.  
- Government stabilization tools are optional under the BRRD and subject to prior approval by EC DG-Comp in line with the EU State Aid framework.

### Legal safeguards, NCWO, and pari passu treatment
- Safeguards in place include protection that shareholders and creditors should not incur losses greater than under bankruptcy proceedings (the “no-creditor-worse-off” (NCWO) principle). If left financially worse off based on a professional third-party valuation, they are entitled to compensation from the SRF.  
- The BaSAG respects the hierarchy of claims, and the power to deviate from pari passu treatment of creditors is explicitly available when using the bail-in tool.  
- Recommendation: The ability to depart from pari passu treatment in a class should also be explicitly available when using the sale-of-business tool and the bridge-institution tool (e.g., to transfer certain liabilities such as uncovered corporate deposits but not other liabilities in the same creditor class). The MOF should amend the BaSAG to make explicit the power to deviate from pari passu treatment of creditors when using any resolution tool to reduce legal challenge risk.

### Powers to remedy impediments to resolution and past use of powers
- The legal framework provides the FMA Board, acting as NRA, wide-ranging powers to require changes to enhance resolvability, including requiring a bank to limit its maximum individual and aggregate exposures, divest assets, limit or cease activities, or change legal/operational structure. These powers have not been exercised to date because banks have made satisfactory progress.  
- The FMA Board, as NRA, has used BaSAG powers in the HETA resolution: applied the bail-in tool after an FOLTF determination and utilized a general resolution power to alter maturity of debt instruments via a 15-month creditor moratorium.

### Tax treatment of restructuring gains
- The HETA resolution highlighted a provision in the Austrian tax code treating restructuring gains as taxable income (e.g., when liabilities are written down in bail-in). The GSA enacted for HETA provided an exemption. The MOF should explore scope for making explicit in legislation that restructuring gains are not taxable.

### Summary of Recommendations (from section)
- Consider providing for P&A transactions in the bankruptcy regime;  
- The BRD should routinely seek the opinion of OeNB on the existence of a public interest in the use of resolution powers;  
- The BSD and BRD should agree on a policy on how to apply the elements of the FOLTF determination;  
- The MOF should seek to clarify in the legal framework the interaction of potential simultaneous appeals of SRB decisions at the local and European levels;  
- The BRD and MOF should agree on a shared interpretation of the requirement that the BRD seek the minister’s written approval prior to taking any actions that may have a direct fiscal impact, or which have systemic implications;  
- The MOF should formulate internal written policies and procedures as to when and how the government stabilization tools might be utilized;  
- The MOF should amend the BaSAG to make explicit the power to deviate from pari passu treatment of creditors when using any resolution tool; and  
- The MOF should explore the scope for making explicit in legislation that restructuring gains are not taxable.

### Resolution planning: responsibilities, strategies, and categories
- The SRB and the BRD are responsible for resolution planning. For the 11 banking groups under the SRB’s authority, resolution plans are prepared by the SRB IRTs with substantial support from BRD and OeNB staff. BRD staff serve as sub-coordinators of the 11 IRTs.  
- The BRD prepares resolution plans for all other groups/banks. Essential decisions concerning resolution planning are approved by the FMA Board as NRA (e.g., MREL setting). The FMA Board is briefed every six months and annually reviews and approves an annual and multi-year plan for resolution planning work proposed by the BRD.  
- Resolution planning components: decide preferred resolution strategy (PRS), identify fallback strategies, decide on single point of entry (SPE) versus multiple point of entry (MPE), identify impediments via formal resolvability assessments. The ultimate goals are that plans be credible and feasible.

- BRD categorization for 2019 planning cycle:
  - 16 banks in the “fully-fledged” category (including most HP-LSIs) for which fully-fledged resolution plans are prepared; under EBA guidelines these banks are not eligible for simplified obligations, and bankruptcy would jeopardize BaSAG objectives.  
  - 12 “deposit-focused” banks for which bankruptcy may be credible for idiosyncratic problems but not during broader instability; these banks are eligible for simplified obligations and receive proportionate plans focusing on the sale-of-business tool as the PRS in systemic distress. (These banks were identified based on volume of covered deposits relative to DGS resources estimates.)  
  - 404 “harmonized” banks for which bankruptcy proceedings are deemed credible and feasible and which receive a standardized resolution plan where the strategy is bankruptcy proceedings.

### Current PRS decisions and progress
- For most SIs and banks in the “fully-fledged” category, the PRS is recapitalization via bail-in under an SPE approach.  
- For two groups with subsidiaries in multiple neighboring jurisdictions, bail-in under an MPE approach involving multiple resolution groups has been deemed more appropriate.  
- For two other groups, the PRS is a transfer strategy (sale of business) under an SPE approach; fallback strategies pending further analysis.  
- For the “deposit-focused” category, the PRS in a systemic crisis envisions the sale-of-business tool with an acquiring institution; alternative is transfer to a bridge institution.  
- Resolution planning remains ongoing; 2019 focus includes SRB banks and the 16 “fully-fledged” banks, further elaboration of PRSs, further resolvability assessment, and prioritization of impediments to address.

### MREL setting and timelines
- Based on the PRS, a Minimum Requirement for Eligible Liabilities (MREL) is determined to ensure adequate loss-absorbing capacity and recapitalization funding to support the PRS.  
- Some banks will not meet eventual MREL requirements, representing impediments until MREL is in place, required by January 1, 2024 at the latest.  
- For banks under the SRB’s remit, binding MREL targets at consolidated group (parent) level and at solo level for material group entities will be set for the first time in 2019.  
- For banks in the “fully-fledged” category, a binding consolidated MREL requirement was set in 2019. Requirements for material entities in groups (solo-level) will likely be set in 2020.  
- All “harmonized” category banks were informed in the 2017 and 2018 cycles that their MREL requirement will equal their capital requirements (including buffers).  
- For “deposit-focused” banks, the BRD likely would set indicative (nonbinding) consolidated MREL targets in 2019, with binding targets likely in 2020 or 2021. Additional 2019 work will determine potential subordination requirements associated with MREL to increase bail-in practicality.  
- The SRB’s standard approach to subordination, if applied to central institutions of IPSs and some other Austrian banks, would require issuance of substantial volumes of senior nonpreferred debt. The BRD advocates a tailored bank-by-bank approach. The BRD should continue efforts to fully articulate MREL and subordination requirements and strive to ensure all banks meet MREL as soon as possible.

*Source: 1autea2020002 - Procedures for use of resolution powers and tools are well established. The FMA Board*

### 54.      The envisioned MPE approach to bail-in for two Austrian groups gives rise to the need

### 1autea2020002 - 54.      The envisioned MPE approach to bail-in for two Austrian groups gives rise to the need

### MREL, bail-in scope, and market constraints
- Subsidiaries in neighboring jurisdictions where a resolution group has been designated will need to issue MREL into the local market; limited-capital-market development in some jurisdictions may constrain issuance.
- SRB and BRD are considering a transitional period allowing required MREL to be held by a group entity in Austria with an agreed phase-out in which internally issued MREL is replaced by MREL issued to third parties.
- Eligible (potentially bail-inable) debt instruments include: subordinated debt, senior nonpreferred debt, and senior debt; other eligible liabilities include uncovered (uninsured) corporate deposits of greater than one-year maturity, excluding corporates that qualify as SMEs.
- The "subordination requirement" would specify an amount of MREL contractually subordinated to certain uncovered deposits to:
  - make such subordinated MREL subject to full bail-in prior to bail-in of depositors;
  - potentially substantially reduce the number of counterparties subject to bail-in; and
  - reduce the need to bail-in depositors.

### Resolvability assessments and impediments
- Resolvability assessments for banks under SRB and BRD remit have identified potential barriers, but none have been determined to be "substantive impediments" to date.
- As strategies are developed further, identification of impediments will sharpen.

### Liquidity needs in resolution: ELA and SRF
- Supplemental liquidity funding beyond a bank’s own resources may be required prior to and subsequent to resolution action.
- Two last-resort sources of liquidity funding:
  - emergency liquidity assistance (ELA) from the OeNB; and
  - the Single Resolution Fund (SRF).
- For ELA:
  - resolution planners cannot assume access to ELA, but the BRD and banks should be cognizant of the OeNB’s ELA framework to help ensure eligibility if the OeNB Board deems the bank eligible.
  - The OeNB should consider adopting further policy guidance on criteria to assess whether a recapitalization plan is credible and on accepting additional collateral (e.g., a portfolio of residential mortgages).
- For SRF:
  - BRD has pursued discussions with the SRB but there are no formal policies or procedures addressing potential use of the SRF for liquidity funding to date; BRD should continue to engage with the SRB.

### SRF capacity and constraints (key figures)
- The SRF funding potentially available for Austrian banks as of end-2018 was roughly €17.3 billion, comprised of:
  - funded amount of the Austrian compartment of €786 million;
  - a bridge-financing arrangement in the form of a Loan Facility Agreement (LFA) from the state for the unfunded portion of the Austrian compartment of €1.6 billion in total; and
  - the remainder from mutualized compartments.
- Conditions that may constrain SRF utility:
  - prerequisite that shareholders and creditors collectively first absorb losses of at least 8 percent of total liabilities and own funds of the bank for loss absorption and recapitalization support (not required for liquidity support);
  - SRF amount is limited to five percent of a bank in resolution’s total liabilities and own funds.

### Legal and compensation risks: pari passu and NCWO
- The BRD can depart from pari passu treatment of creditors in the same class under certain circumstances (e.g., to maximize value for all creditors, maintain financial stability, or operational practicality).
- Under creditor hierarchy, uninsured depositors (except uninsured household and SME depositors) and senior unsecured bondholders rank in the same class; departing from pari passu treatment may give rise to NCWO claims by bondholders.
- NCWO claims must be paid by the SRF; SRF access criteria and NCWO risk constrain bail-in feasibility and credibility.
- MREL subordination requirements are intended to mitigate some NCWO-related challenges.

### Use of bridge institutions and AMVs
- Bridge institution:
  - Serves as effective fallback when a private-sector acquirer cannot be concluded within required timeframe or on acceptable terms.
  - BRD is developing a national handbook and is working with the MOF to establish a shell bridge institution addressing ownership, governance, capitalization, and funding.
  - Objective: government or other government entity, not the FMA, should be the owner of a bridge institution.
- Asset management vehicle (AMV):
  - BRD initiated preparation of a national handbook and is in discussions with the MOF on AMV ownership and rapid governance establishment.
  - Objective: government, or government entity, and not the FMA, should be the owner of an AMV.

### Cross-border cooperation and operational preparedness
- BRD participates in SRB IRTs, establishes resolution colleges where it serves as group-level resolution authority, and supports crisis management groups for G-SIBs.
- BRD has established resolution colleges for two Austrian-headquartered banks with operations in EU member states outside the banking union and participates in four colleges for banks under SRB group-level authority.

### Data standards, FOLTF determinations, and supervisory capacity
- BRD, BSD, and OeNB are developing a minimum standard data template to support valuations and resolution implementation; intended to be in place by mid-2020.
- FMA needs capacity to evaluate a bank’s financial condition for making an FOLTF determination; responsibility initially falls to the BSD (and ultimately to the Executive Board as NCA).
  - BaSAG allows use of a third-party valuation (the so-called Valuation 1) to support this determination, but supervisory expert judgment prior to balance sheet insolvency is essential.
- FMA and OeNB Working Group established to address interactions between recovery plans and resolution plans, focusing on recovery measures that most impact resolvability.

### Summary of key recommendations (as presented)
- The BRD should continue efforts to fully articulate MREL and subordination requirements and ensure all banks meet their MREL requirements as soon as possible.
- The BRD should pursue discussions with the OeNB regarding the provision of ELA.
- The BRD should continue to engage with the SRB regarding policies and procedures relating to potential use of the SRF as a source of liquidity funding in resolution.
- The MOF and the FMA should consider establishing a shell bridge institution and a shell AMV, with the objective that the government or some other government entity and not the FMA be the owner.
- The BRD should continue to develop the minimum standard for data to support resolution.
- The FMA should strengthen supervisory capacity to ensure the ability to make FOLTF determinations well prior to balance sheet insolvency.
- The BSD and the BRD should continue to pursue efforts to identify and address interactions between recovery measures and resolution planning.

*Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1autea2020002.pdf*

### 71.      The OeNB has procedures in place for decision making on possible ELA. In the event of

### 1autea2020002 - 71.      The OeNB has procedures in place for decision making on possible ELA. In the event of

### Emergency Liquidity Assistance (ELA)
- The OeNB has procedures identifying which departments are to be involved in assessing an ELA request.
- For a bank in resolution, the OeNB would:
  - evaluate the plan to restore solvency;
  - assess the collateral being offered; and
  - make a recommendation to the OeNB Board, which would take the decision after consultation with the MOF and the FMA Board acting as both NCA and NRA.
- The OeNB can provide ELA in foreign exchange. In the event of need, the OeNB would most likely seek foreign exchange from the ECB, which has swap lines in place with key central banks.
- The usage of such swap lines is subject to approval of the central bank providing foreign liquidity, and therefore foreign currency liquidity provision through the swap lines cannot be assumed.
- No government backstop arrangement for ELA currently exists. The Agreement on Emergency Liquidity Assistance envisions that ELA could be collateralized by guarantees.
- During the global financial crisis, the MOF created bonds used by banks as ELA collateral; doing so again would require new legislation.

Summary recommendations on ELA:
- The OeNB should consider adopting internal policy guidance and procedures for granting ELA in specific situations to a bank in resolution, including:
  - defining criteria to assess whether a recapitalization plan is credible;
  - specifying what information is required from FMA to make the assessment; and
  - identifying what additional collateral (beyond that eligible for Eurosystem monetary operations) could be accepted and under what terms and conditions.
- The OeNB should consider whether to formally discuss with the ECB potential access to foreign exchange in advance of case-specific discussions at the time of actual need.
- The OeNB and the MOF should explore mechanisms under which to facilitate a timely MOF guarantee or other arrangements to support ELA as a contingency.

### Government Support
- Government support arrangements include the BaSAG’s government stabilization measures and, potentially, the FinStaG.
- The stabilization measures provide for a government equity injection into a bank in resolution and for nationalization of a failing bank (temporary public ownership); these would require legislation to be passed in time of need.
- The MOF should consider formulating and tabling legislation providing for standing authority, subject perhaps to limitations, to implement these measures as a contingency without need for further legislative action.
- The FinStaG, enacted in 2008 and subsequently amended, provides for government capital and liquidity support up to €23.5 billion to systemic banks and insurers, as approved under the various EC State Aid decisions rendered after the global financial crisis.
- The MOF should explore the extent to which the FinStaG can be used in future for other purposes.

Summary recommendation on government support:
- The MOF should consider legislation providing for standing authority to implement the government stabilization measures without need for further legislative action.
- The MOF should explore the extent to which the FinStaG can be used in future.

### Deposit Protection
- The Deposit Guarantee Scheme Directive (DGSD) introduced harmonized coverage of deposits at €100,000, a requirement for faster payout (seven days), and ex ante and ex post funding arrangements.
- The DGSD requires that banks’ contributions be risk-based and that each national scheme shall reach a target level of at least 0.8 percent of covered deposits by 2024.
- Austria has two deposit guarantee schemes (DGS):
  - Einlagensicherung Austria GmbH (ESA) — the “uniform DGS” for banks not members of the second DGS; ESA is owned by its 500 members.
  - Sparkassen-Haftungs GmbH (S-Haftungs) — DGS of the savings bank sector, owned by HVG; it has 49 members.
- ESA was formed on January 1, 2019 by integrating four pre-existing schemes.
- Both DGSs are organized as companies under private law and are supervised by the FMA.
- Both DGSs offer uniform coverage of deposits at €100,000 and cover resident and nonresident depositors in banks licensed in Austria and their branches in the EU and elsewhere.
- They do not cover deposits by other banks or investment firms, deposits by collective investment schemes or other investment funds, most deposits by pension and retirement funds, deposits of governments, and deposits held in non-EU countries.
- Covered deposits as of December 31, 2018, were €217 billion:
  - €173 billion covered by the ESA;
  - €44 billion covered by S-Haftungs.
- DGSs are authorized to pay out covered deposits upon certain triggering events, generally when a court opens bankruptcy proceedings upon a petition filed by the FMA, or when the FMA directs a bank to cease making payments pending the FMA’s filing of a bankruptcy petition.
- If a bank ceases making payments, the FMA has five days in which to make a determination that triggers a payout.
- Ex ante contributions are set to achieve the target fund balance of 0.8 percent of covered deposits by July 2024.
- Members of both funds are liable for contingent contributions in any year that amount up to 0.5 percent of their covered deposits.
- S-Haftungs has a risk-based contribution framework in place; ESA would have one operational before end-2019, already approved by the FMA.
- The assets of the DGS funds are held in cash in accounts at the OeNB and are thus readily available to fund a payout.
- Under the ESAEG, DGSs can access the funds of the other DGS (including contingent contributions) if resources prove insufficient.
- Both DGSs have authority to borrow, including from their own members or from third-parties; borrowings can be guaranteed by the MOF under the ESAEG.
- No ex ante guarantee is in place; the MOF would need to table legislation to provide for it. The MOF believes such legislation could be approved within a matter of days in time of need.
- Both DGSs had available resources of nearly 40 percent of their target fund balance as of January 1, 2019:
  - ESA fund balance: €526 million; target balance: €1.38 billion.
  - S-Haftungs fund balance: €138 million; target balance: €366.64 million.
- Both funds could achieve their target balance by drawing on one year’s extraordinary contributions from their members.
- DGSs are required to be able to make payouts within seven days and operate web-based platforms for depositors to specify payout bank accounts; instructions are sent by registered mail and arrangements exist with printing offices and the postal service to ensure timely communication.
- DGS funds can be used to provide resources to associated IPS arrangements, but in practice this is unlikely because IPS resources must be depleted first and numerous consultations are required.
- DGSs currently do not have the power to finance the transfer of assets and liabilities in bankruptcy (P&A transactions); acquiring such a power would conserve cash resources relative to a payout and reduce reliance on the bankruptcy estate.
- Under BaSAG, DGSs have the power and obligation to finance resolution actions in certain cases; in the context of bail-in, DGSs are liable for the amount by which covered deposits would have been written down, with liability capped at the net losses that would result under bankruptcy proceedings and cannot exceed 50 percent of their available funds.
- Given operational challenges and the cap on liability, the BRD does not foresee DGS financing as a practical source of funding, though clarifying interpretations could increase options.
- At present there are no Memoranda of Understanding (MOUs) between the FMA and the DGSs; formalizing cooperation and information-sharing in an MOU is recommended.
- Transforming the DGSs into public sector entities would help enable improved exchange of confidential information and inclusion in national contingency planning and crisis management.

Summary recommendations on deposit protection:
- The MOF should consider securing ex ante standing authority to provide a guarantee for the borrowings of either DGS.
- Should the ESAEG be amended to provide the ability for DGSs to undertake P&A transactions, the DGSs and the BRD should work together and with potential acquiring banks to develop operational capacity to execute such transactions.
- The DGSs and the BRD should consider working together to clarify their interpretations of current law regarding the amount of funding potentially available from the DGSs to support resolution funding and to formulate relevant policies.
- The FMA and the DGSs should formalize cooperation and information sharing arrangements in the form of an MOU, subject to strong confidentiality arrangements to prevent sensitive bank information being shared with the owners of the DGS.
- Consider transforming the DGSs into public sector entities, to ensure their full integration in crisis management and preparedness arrangements.

### Contingency Planning and Crisis Management
- The OeNB maintains a written operational and financial crisis management handbook known as ORION; it addresses team composition, workflows, decision-making authorities, escalation procedures, and communications. The handbook is summarized in a pocket guide last updated in December 2018.
- The FMA has a crisis management manual focusing on responses to problems in individual institutions and groups; the plan was last updated in 2015.
- The MOF does not have a comparable contingency plan.
- The FMA’s plan should be updated and the MOF should develop a plan. Contingency plans should contemplate systemwide crises involving simultaneous distress and potential failure of multiple banks, groups, and other financial institutions.
- Plans should be routinely updated, generally on an annual basis.
- There is limited testing of contingency plans:
  - The OeNB has a formal testing program involving one crisis-management exercise and two business-continuity exercises per year; the last exercise was conducted in early 2019.
  - The FMA and the MOF have no regular testing program.
- All three authorities should undertake periodic testing of elements of their contingency plans; the OeNB could consider expanding its annual testing program and the FMA and MOF should implement similar programs.
- Institutional arrangements for interagency coordination:
  - The Financial Market Stability Board (FMSB) was established, chaired by the MOF; it has six members effectively nominated four by the MOF, one by the OeNB, and one by the FMA.
  - The FMSB addresses risks in normal times and may facilitate cooperation in times of stress or crisis and can issue recommendations.
  - A Domestic Standing Group (DSG) replaced the Financial Market Committee and consists of one representative each from the FMA, the OeNB, and the MOF; the DSG reportedly has partly lost its function and has no fixed meeting schedule.
- A senior-level interagency body with a mandate to ensure a national financial crisis contingency plan in place currently does not exist; higher priority should be given to interagency contingency planning.

Summary recommendations on contingency planning and crisis management:
- The FMA should update its crisis management manual and the MOF should develop such a manual or contingency plan.
- Contingency plans should contemplate systemwide crises.
- Contingency plans should be routinely updated.
- The OeNB should expand the scope of its annual contingency plan testing program, and the FMA and the MOF should adopt such programs.
- The authorities should update the mandate of the DSG and establish a regular meeting schedule.
- A senior-level interagency body should be established with a mandate to ensure adequate contingency planning and testing of plans at the individual agency and national levels.

*Source: Content unit 1autea2020002*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1autea2020002.pdf_