05. 07. 11. - 15:57

Crisis withdrawals caused 'dramatic' situation

Austria’s banks were at risk of running out of cash at the peak of the recession, it has been revealed.

Weekly magazine profil disclosed that savers withdrew around one billion Euros a day in October in the wake of the collapse of US bank Lehman Brothers. The financial institute’s bankruptcy sent shockwaves across the world. The collapse and the financial markets’ reactions to it are understood to be the main triggers of the global economic downturn many economies have still not recovered from.

Social Democrat (SPÖ) Christoph Matznetter, who acted as state secretary for financial affairs in autumn 2008, admitted that this period was a “critical phase,” while profil points out that Austrians withdrew only 250 million to 300 million Euros on regular workdays.
Matznetter told the magazine he was still convinced that the government coalition – which was formed by his party and the People’s Party (ÖVP) at that time – was right about keeping quiet about the intense activity at cash machines. The Social Democrat claimed that a revelation of the soaring figures would have caused panic and worsened the situation of the country’s banks.

The Austrian National Bank (OeNB) now admitted to profil that the relocation of deposits was “really dramatic” in October 2008. It stressed that the situation was also worrying due to Vienna’s reputation as a crucial marketplace for Central and Eastern Europe (CEE).

“We were silent having political developments and stability aspects in mind,” Matznetter said about those weeks in October 2008. He claimed: “Every doctor must act that way. If news could worsen the condition of a patient, he may hold it back.”

The OeNB decided to approach Germany and Italy to provide Austria’s leading banks with banknotes to cope with the situation, according to the profil report.

The SPÖ-ÖVP administration decided in October 2008 to announce that the Republic of Austria will assume full liability of Austrians’ complete savings at domestic banks. The state would have compensated people for sums up to 20,000 Euros only previously in the case of a collapse. The coalition argued that it abolished the limit only to ensure Austria remained competitive as Germany had already lifted its own restrictions.

The government went on to agree on a package of measures aimed at helping Austria’s leading banks through the crisis. It included the provision of billion of Euros in so-called participation capital commonly referred to as state aid.

The country’s four leading banks – Erste Bank Group AG (Erste Bank), Raiffeisenzentralbank (RZB), BAWAG PSK (BAWAG), Volksbank AG (ÖVAG) – applied for help. Hypo Group Alpe Adria (HGAA) – which had to be nationalised in December 2009 – received hundreds of millions of Euros from the government as well.

The financial institutes were ordered to pay back all of the money with interest when their situation improves. However, business press are speculating that especially HGAA will be unable to return substantial amounts of the aid it has received since its near collapse.