Austria�s constitutional court: Austrian Banks should participate in the cost of the financial crisis

Source: Katarina Krempova¸ PKF Malta¸ 14 February 2012

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The Austrian’s constitutional court has rejected Hypo Vorarlberg’s complaint against the introduction of the country’s bank tax. According to the constitutional court¸ the country’s bank tax does not violate the constitution and the Austrian banks should contribute to the costs of the economic crisis.

The small credit institute finds the coalition’s so-called stability levy unfair and feels it is being disproportionately penalized in comparison to its larger competitors¸ who have also benefited from the comprehensive bank aid packages in 2008.

But the Constitutional court contested this view and has therefore decided to pursue this case by sending a reasoned opinion. The court indicates the fact that since 2008 the government has introduced a series of comprehensive bank rescue packages¸ economic stimulus packages and other packages in order to ensure the stability of Austrian Banks.

From the bank rescue package in 2008 alone¸ the Austrian Banks have benefited from an amount of around € 100 billion which was made available to them in the form of capital and liabilities. At that time¸ the banks had committed themselves to provide the capital to Austrian companies in the form of loans. But to date¸ some of the banks were not able to meet this obligation.

In addition¸ the Federal Government has alluded to the fact that the multi-billion dollar aid packages have massively burdened the state budget between 2008 and 2010. The court agrees with this and has pointed out the special role of banks in the financial crisis in 2008.

According to the court¸ the aim of the bank levy is to ensure the stability of the financial markets and the participation of banks in a financial crisis. However¸  it is consitutionally difficult to distinguish between “good” and “bad” banks. Accordingly¸ the bank tax will be levied on all banks. This stability levy is not a tax penalty for risky business of a bank¸ but rather a burden on the economical sector which could be a potential source of qualified risks¸ the court said in its defence.

But is this really the right solution for the Austrian economy? Considering that after the introduction of a temporary bank tax in Hungary¸ the hungarian “Erste Group“ reported a sharp loss and considering that other hungarian banks had annouced staff cuts in 2010¸ it really doesn’t seem to be the right kick for the economy. At that time¸ the bank tax was harshly criticized.

In addition¸ dark recession forecasts together with turmoil in the financial markets doesn’t make the future prospects for the Austrian banks better – these are some of the hurdles Austrian banks will have to overcome in the next couple of years.

But the stability levy is not the only burden felt by the Austrian banks. In the year 2013¸ Basel III should come into force. This will bring even higher requirements with regards to the equity-capital base of the banks. Michael Ikrath¸ Secretary-General of Sparkasse-banks¸ has warned that it could come to a massive credit crunch at the time of the entry into force of Basel III.

The question is whether this is really the right way to