Austria: Oesterreichische Clearingbank AG (OeCAG)

OeCAG was authorized by the Interbank Market Support Act (IBSG), which was passed alongside the Financial Market Stability Act (FinStaG) as part of the Austrian Financial Market Stability Package. This package of measures was introduced in response to the joint call from euro-area countries for national legislation aimed at restoring financial market stability (Austrian Financial Market Stability Package). FinStaG’s primary authority involved strengthening the capital base of individual credit institutions, including outright capital injections, the acquisition of existing shares, and even the ability to obtain ownership rights of institutions in “exceptional cases”.

The IBSG, which was established to strengthen the interbank market, allowed the Federal Minister of Finance to assume liability for “a company established for the exclusive purpose of borrowing funds from credit institutions or insurance companies via the interbank market in its own name and for its own account and loaning these funds to other credit institutions or insurance companies via the interbank market in its own name and for its own account.” As part of this liability, the Minister of Finance was authorized to provide guarantees for short-term securities issued as part of these transactions (Republic of Austria 2008).

On October 31 2008, a little less than a week after IBSG was enacted, Austria notified the European Commission (EC) of its passage. In a letter dated December 9, 2008 the EC notified the Austrian government that though the guarantees under IBSG constituted state aid under Article 87(1) of the EC Treaty, they were permitted under Article 87(3)(b) of the Treaty (Global Trade Alert 2008). Article 87(3)(b) permits state aid “to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State” (European Commission n.d.). This decision was consistent with an earlier communication published by the EC, which stated that Article 87(3)(b) could be used as a legal basis for aid measures like general schemes to address the financial crisis (European Commission 2008).

OeCAG obtained the funds used to make loans to borrowing banks and insurance companies by taking deposits via auctions and issuing short-term securities. When issuing short-term securities, the clearing bank could elect for the government to assume liability as a guarantor in an amount capped at €5 billion (Schmitz, Weber, and Posch 2009, 67). In addition, as part of its €75 billion budget for guarantees under IBSG, the Austrian government specifically earmarked €4 billion for absorbing the losses of OeCAG on loans it made to borrowing banks and insurance companies. This guarantee was triggered if a loan default caused OeCAG’s regulatory capital to fall below legally required levels, in which case the government would provide enough equity capital to restore the clearing bank’s regulatory capital to the required minimum amount.  

Though the IBSG budget was reduced over the life of the finance facility, the reductions did not appear to affect the amount pledged to cover OeCAG loan defaults (Federal Ministry of Finance n.d.).

IBSG stipulated that ownership of the clearing bank “shall be limited to credit institutions, insurance companies or the statutory bodies set up on the professional associations level for the representation of their interest” (Republic of Austria 2008). In accordance with this stipulation, Austrian banks established OeCAG. The clearing bank was funded by €180 million of contributions from the private sector, and its operations were managed by the Oesterreichische Kontrollbank AG (OeKB), the longstanding central securities depository for Austrian institutions, which was also owned by the banks. Although the government did serve as a guarantor, the equity capital funded by the banks was meant to buffer initial loan losses. This in turn could “reduce the potential moral hazard at the expense of the Federal government and the taxpayers” (Kalss 2010, 531).

OeCAG conducted regular auctions at which both sides of the market submitted price and quantity bids. Demands for credit for fixed terms, usually three months and six months, were met only if there was a corresponding offer from the deposit side; the bank did not perform any maturity transformation (Schmitz, Weber, and Posch 2009, 67). IBSG required the clearing bank to “provide its services for a fee and at a lending interest rate, which [would] be in conformity with market conditions” (Republic of Austria 2008).

IBSG stipulated that the clearing bank would borrow funds from credit institutions or insurance companies and loan them in turn to other credit institutions or insurance companies (Republic of Austria).

The proceeds from the guaranteed debt issuances would then be lent to eligible institutions.

Securities issued by OeCAG had to have a maturity of one year or less in order to be eligible for the government guarantee (Posch et al 67). The government does not appear to have established minimum maturity requirements for eligible debt.

Program documents contained no language restricting eligible currencies, and OeCAG appears to have conducted auctions in euros and dollars.

Program documents contained no language restricting the amount that an individual institution could borrow from OeCAG.

Under IBSG, all credit institutions and insurance companies owed the government a fee for its assumption of liability. IBSG explicitly stated that this fee also applied to the clearing bank (Republic of Austria 2008). Austria’s approach to fees followed guidance issued by the European Central Bank in “Recommendations on Government Guarantees on Bank Debt” on October 20, 2008. In practice, because the guaranteed securities issued by the OeCAG had to have maturities of one year or less, the flat 50 bps fee was consistent with the ECB’s guidance (Schmitz, Weber, and Posch 2009, 67).

Program documents contained no discussion of further conditions for borrowing from OeCAG.

The guarantee scheme under IBSG expired on December 31, 2010, at which point no new guarantees could be issued by the government. The scheme was extended by a year from its original expiration date of December 31, 2009 (Federal Ministry of Finance n.d.).