Financial Crime World

International Standards for Bank Capital Adequacy, Stress Testing, and Liquidity Requirements to Enhance Credit Institutions’ Resilience

The Financial Market Authority (FMA) in Vienna, Austria has reaffirmed its commitment to ensuring the stability of Austria’s financial system by implementing international standards for bank capital adequacy, stress testing, and liquidity requirements.

Implementation of International Standards

The Basel Committee on Banking Supervision (BCBS), a global regulatory body, has set forth a series of guidelines aimed at increasing credit institutions’ level of resilience. The FMA, as a representative in the BCBS, is working to implement these standards in Austria’s regulatory framework.

Capital Adequacy Requirements

In Austria, capital adequacy requirements are stipulated in Article 92 of the Capital Requirements Regulation (CRR) and Article 22 et seqq. of the Banking Act (BWG). According to these rules:

  • Credit institutions must maintain a Common Equity Tier 1 capital ratio of 4.5%
  • A Tier 1 capital ratio of 6%
  • A total capital ratio of 8%

Additionally, credit institutions must hold a capital conservation buffer made up of Common Equity Tier 1 equal to 2.5% of the total risk exposure amount.

Liquidity Requirements

The CRR adopts two standards:

  • The Liquidity Coverage Ratio (LCR) requires credit institutions to hold liquid assets that can cover net liquidity outflows over a short period of time (30 days)
  • The Net Stable Funding Requirement (NSFR demands that financial institutions raise stable funding at least equal to their stable assets or illiquid assets

Monitoring and Enforcement

The FMA monitors compliance with capital requirements by credit institutions and may take various measures if these requirements are not met, including:

  • Issuing instructions
  • Imposing additional reporting obligations
  • Revoking a credit institution’s banking license

Deposit Protection and Anti-Money Laundering Measures

Austria’s regulatory framework also ensures the protection of depositors in case of bank failures. The European Single Deposit Guarantee Scheme (ESAEG) requires every credit institution with its registered office in Austria to be affiliated with a statutory deposit guarantee scheme, which provides coverage for deposits up to €100,000 per customer and bank.

Furthermore, Austria has implemented anti-money laundering legislation to prevent the abuse of the financial market and the financial system. Credit institutions must comply with specific requirements under:

  • The Financial Markets Anti-Money Laundering Act (FM-GwG)
  • The Beneficial Owners Register Act (WiEReG)

Conclusion

These measures aim to enhance the resilience of Austria’s financial system, protect depositors, and prevent money laundering and terrorist finance activities. By implementing international standards for bank capital adequacy, stress testing, and liquidity requirements, the FMA is working to ensure the stability and security of Austria’s financial market.