Austrian Central Bank Clashes With Loeger on Bank Oversight
Austrian Finance Minister Hartwig Loeger clashed with Governor Ewald Nowotny on Monday over the government’s plans for a sweeping revamp of banking supervision that would strip the central bank of its oversight role.
Loeger said he wants to make banking supervision more “service-oriented,” less costly and more concerned with domestic interests, according to a draft law he submitted to Austrian parliament for public comments today. Nowotny dismissed the plans, saying they would be less efficient, more costly, and interfere with the central bank’s independence.
The clash came a day after Loeger and Nowotny both attended the International Monetary Fund’s spring meeting. Central bank independence became a key theme on the sidelines of the get-together as European Central Bank President Mario Draghi took the rare step of weighing in on the debate over whether President Donald Trump is undermining the independence of the Federal Reserve.
Loeger’s move, the rough outline of which was announced in November, will end the dual structure of Austrian banking supervision, which was split between the Financial Market Authority and the central bank for almost two decades. The most recent reform came in 2007 after supervisors prone to political influence failed to prevent bank scandals at Bawag PSK Bank AG and at Hypo Alpe-Adria-Bank International AG.
The goal of the new structure is to “make the entire system more efficient and remove unnecessary duplication,” as well as to “accelerate and simplify decision-making” and “strengthen service-orientation,” according to the draft law. The FMA and the central bank are required to implement cost-cutting programs which will save 10 million euros per year from next year, Loeger said in a statement.
Nowotny said in a separate statement that the cost effect would be the opposite, in part because it includes creating new civil servant posts in the ministry, and that the plan to increase the dividend the central bank has to pay out interferes with its financial independence. He said the ECB would analyze the law with a focus on independence as well.
The revamp involves shifting 180 central bank staff analyzing and auditing Austrian banks to the FMA. One-time payments are planned to make up for any loss of benefits. Loeger will also remove Helmut Ettl, one of the FMA’s two co-heads, leaving Klaus Kumpfmueller as sole president. Ettl was nominated to the FMA’s leadership by the central bank in 2008, and his term is scheduled to end in 2023.
The reform also gives Loeger’s ministry a bigger role in regulation. The draft law foresees the creation of 30 positions in the finance ministry, which will write laws and implement European regulatory standards with Austrian interests in mind.
“Within the European regulatory framework, there will be a special focus on the specific situation of Austria as a financial center, and industrial policy aspects will be considered more extensively,” according to the law.
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