Austria’s government plans a sweeping revamp of banking supervision that would strip the central bank of its oversight role.
Long allies in the oversight of Austria’s banking system, the Finance Ministry and the National Bank are at loggerheads over the coalition’s plan to consolidate audit and analysis functions at the Ministry, drawing heated criticism from ÖNB Governor Ewald Nowotny at the International Monetary Fund’s (IMF) spring meeting on April 15.
The government’s draft law, unveiled for the first time in November 2018, aims to end the dual structure of Austria’s banking supervision. In the last two decades, the Austrian National Bank and the Financial Market Authority (FMA), a department of the finance ministry, handled supervision jointly.
The change involves shifting 180 National Bank auditors to the FMA, to make banking supervision more “service-oriented” and more concerned with domestic interests, Austrian Finance Minister Hartwig Löger said in a statement. The new structure should “make the entire system more efficient and remove unnecessary duplication,” as well “accelerate and simplify decision-making” and “strengthen service-orientation,” with savings of up to €10 million.
Nowotny thinks this is wishful thinking. The move as actually making banking “more costly and less efficient,” the ÖNB governor said. Among other things, the bigger role the law envisions for the finance minister involves the creation of an additional 30 civil service positions. Even more serious is the threat to central bank independence by a government-mandated cost-cutting program of €10 million per year each for the FMA and the central bank. Another bone of contention is the plan to increase the dividend the central bank has to pay to the government.
Going It Alone
All in all, Nowotny was nonplussed, and lashed out at the government: “The planned move of banking supervision away from the Austrian National Bank is singular in Europe and does not correspond to any trend,” he told the daily Der Standard. “Needless to say, we are less than pleased.” The ÖNB governor plans to bring the law to the European Central Bank (ECB) for review, with a focus on central bank independence.
The question of the right structure of banking supervision is also part of a broader debate on the government’s respect for independent institutions, and with a series of perceived threats to the country’s system of checks and balances. A recent restructuring of Statistik Austria, the country’s official statistics office, also drew wide criticism. Experts and opposition politicians have voiced concerns that the new structure would give the chancellery significant sway in deciding when and which statistics shall be published.
The government’s decision to sack high-ranked and Social-Democrat leaning officials both at Statistik Austria and the FMA adds to the concern. Often criticized yet relatively common in Austria, the phenomenon is known as Umfärbung – literally the “recoloring” of government posts – involves replacing officials of the wrong party affiliation, with those of the own leanings. The current government’s attempts, however, involve changing the institutional architecture itself, seen by many as far exceeding this practice and potentially leading to a more politicized and less independent civil service.