Banks prepare to make use of Austrian bail-out package (Roundup)

Oct 20, 2008, 16:24 GMT

Vienna - As Austria's parliament passed bail-out measures for banks Monday, some of the country's financials institutions said they would make use of the government's capital injections and guarantees for inter-bank credits.

All five parties in parliament unanimously approved the package worth 100 billion euros (134 billion dollars).

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

Several banks, including Bank Austria and Raiffeisen Zentralbank, told Austrian news agency APA they would participate in a clearing point, backed up by government guarantees, that will be set up to broker liquidity among banks.

Another 10 billion euros will be allocated to provide blanket guarantees on private savings and to protect accounts held by small businesses up to 50,000 euros.

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

The Sparkasse banking group is considering whether to apply for such help, said Michael Ikrath, secretary general of the group, which includes Erste Bank.

As government support in other countries had already 'massively strengthened' the capital base of banks in other countries, Austrian banks could suffer a competitive disadvantage if they did not follow suit, Ikrath said.

Financial institutions would have to pay for the guarantees, Chancellor Alfred Gusenbauer told the parliament.

'The package in front of you is in no way a gift to banks,' he 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 also includes a ban on short selling of stocks, a practice in which traders bet on falling share prices.

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

Constantia had to be saved with a bail-out plan worth 450 million euros because major customers had shifted their funds to bigger institutions.