Annual Report 2004

The OeNB as a Competent Partner in
Ensuring Financial Stability
OeNB supports small
enterprises and banks
in the Basel II
negotiations
cost and profit efficiency of AustriaÕs
100 largest banks, initiated by the
OeNB and based on the stochastic
frontier approach as well as the distribution
free approach, produced the
following results: The level of profit
efficiency is much lower than that of
cost efficiency, which indicates a satisfactory
homogeneity of the cost efficiency
factor and an insufficient average
utilization of the profit potential.
Therefore, Austrian banks need to
concentrate their efforts on expanding
existing profit potentials to comply
with the focus on long-term financial
stability called upon by the IMF.
Given the strong connection of cost
and profit efficiency, banks will also
need to maintain tight cost management
policies, as banks with a high
level of cost efficiency also ranked
high in terms of profit efficiency. Furthermore,
the FSAP clearly showed
that effective risk management and
especially risk-adjusted lending conditions
constitute key factors in increasing
banksÕ profitability.
The OeNB Supports Implementation
of Basel II
On June 26, 2004, the Basel Committee
on Banking Supervision published
the new Basel II framework. 4 By
agreeing on the new framework after
five years of negotiations at the international
level, the G-10 central bank
governors and heads of banking
supervision authorities defined the
key principles of the new capital adequacy
requirements for banks.
While this essentially concludes the
Basel II process itself, it is now up
to the EU Member States to implement
Basel II by reaching agreement
on a new capital adequacy directive,
whichwillhavetobetransposedinto
national law as a next step.
Concurrent to the proposals of
the Basel Committee, the European
Commission took measures to ensure
the timely implementation of Basel II.
Thus, the European CommissionÕs
Member StatesÕ Expert Group
(MSEG) worked on preparing the
draft directive in the first half of
2004. Austria was represented in the
MSEG meetings by experts of the
OeNB, the Federal Ministry of Finance
and the FMA. On July 14,
2004, shortly after the Basel Committee
on Banking Supervision published
the new capital accord, the European
Commission presented its Basel II
draft directive 5 , which was subsequently
discussed by the EU Council
and the European Parliament. To
strengthen AustriaÕs position through
coordinated action in the negotiations
on the draft directive, a Basel II secretariat
was established and staffed with
experts of the Austrian Federal Ministry
of Finance, the FMA and the
OeNB.
During the Basel II negotiations
at EU level, some of the OeNBÕs
major concerns were a comprehensive
preferential treatment of loans
to small and medium-sized enterprises
(SMEs), the easing of data
and calculation requirements for
banks and the extension of the socalled
partial use option, which permits
the use of simpler calculation
methods for certain types of claims
on nonbanks. In many respects, Austria
succeeded in incorporating its
proposals in the draft. In December
2004, the Austrian Federal Economic
Chamber and the OeNB organized a
workshop for the Austrian members
4 Basel Committee on Banking Supervision. 2004. International Convergence of Capital Measurement and
Capital Standards: a Revised Framework. Basel.
5 See http://europa.eu.int/comm/internalx—market/regcapital/index—en.htm#capitalrequire.
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Annual Report 2004