Austrian parliament set to pass banking bail-out package

Oct 20, 2008, 12:03 GMT

Vienna - Austria's parliament took steps to pass a bail-out measures for ailing banks Monday, consisting of 100 billion euros (134 billion dollars) worth of capital injections and guarantees for inter-bank credits.

Although politicians have stressed that the country's financial sector is in good health, the government and five major Austrian banks had to step in last Thursday to rescue Constantia Privatbank AG, a private banking institution.

As the global financial crisis has led to a lack of trust between banks, the parliament's financial committee on Monday agreed to set aside 75 billion euros as government guarantees for inter-bank lending.

Another 10 billion euros will be allocated to provide unlimited protection for private savings accounts.

If needed, the state will be ready to inject up to 15 billion euros of capital into faltering banks.

'The package in front of you is in no way a gift to banks,' Chancellor Alfred Gusenbauer told the parliament.

Financial institutions would have to pay for the guarantees, Gusenbauer said.

If the government had to buy a stake in a failing bank in order to inject capital, the state would profit when the shares were privatized at a later stage, he added.

The banking package, which is set to be voted on later on Monday, also includes a ban on short selling of stocks, a practice in which traders bet on falling share prices.

Last week, the financial crisis reached Austria when Constantia Privatbank was saved by a bail-out plan worth 450 million euros, financed by five Austrian banks and the national bank.

Constantia was suffering from an outflow of capital as major customers shifted their funds to bigger institutions.