New law gives banking recapitalization power to Austria govt.

Austria govt is likely have a sweeping banking power with the draft law. The law is all set to pass. The draft states that the Finance Ministry can recapitalise banks by injecting cash, buying shares or as a last resort expropriate shareholders.

The draft also says that the impact on Austria’s budget could be “significant” but that this was justified to bolster confidence in the financial sector, and that the impact would only materialise if the measures were actually taken.

The draft says that no bank has a right to claim capital on the basis of this law, but that it is at the discretion of the finance ministry and to some extent the chancellor to take them to protect the system, rather than individual banks.

The draft also says that financial market watchdog FMA can order individual banks or banking groups to fulfill higher capital ratios than is prescribed in the current banking law, if those banks carry a significant risk. The interbank lending guarantees of up to 85 billion euros will be given to a newly formed company which would be owned by the banks itself.

The draft states,

“The draft law … envisages measures to inject funds into affected companies … and to buy ownership stakes to protect the financial system.”

Source: guardian.com

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