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92-680: BAWAG has been designated as a Significant Institution since the entry into force of European Banking Supervision in late 2014, and as a consequence is directly supervised by the European Central Bank . BAWAG was founded in 1922 by the Austrian Chancellor Dr. Karl Renner as the Arbeiterbank (Austrian Worker's Bank), not so much to extend favourable terms of credit to ordinary people, but to spare them to resort to more capitalist institutions (cit. Renner). Socialist trade unions and

184-477: A "prudential backstop," or minimum common loss guarantee for the reserve funds that banks set up to deal with losses from future non-performing loans. If a bank fails to meet this agreed minimum level, deductions are made directly from its capital. In addition to the core SREP process, the ECB is also in charge of assessing banks’ acquisition of qualifying holdings, in accordance with Regulation 1024/2013, Art. 4. Before

276-470: A Refco official, was convicted of 5 charges on April 17, 2008. He was sentenced to 10 years on August 8, 2008. On March 15, 2006, information leaked by the U.S. prosecutor's office revealed that Refco held offshore accounts holding as much as $ 525 million in fake bonds. The company held the "securities" for Bawag P.S.K., the Austrian bank with which Refco had a close relationship, discussed in part above, and for

368-423: A bank is recognized as significant or when deemed necessary (i.e., in case of exceptional circumstances or when a non-Eurozone country joins the mechanism). Comprehensive assessments require too much resources for them to be conducted annually. Other supervision tools are therefore used on a more regular basis in order to assess how banks would cope with potential economic shocks. As required by EU law and as part of

460-512: A close advisor of BNP Paribas . This group led by de Larosière delivered a report highlighting the major failure of European banking supervision pre-2008. Based on this report, the European institutions have set up in 2011 “The European System of Financial Supervision” (ESFS). Its primary objective was: " to ensure that the rules applicable to the financial sector are adequately implemented, to preserve financial stability and ensure confidence in

552-450: A highly regarded buyout fund, and the reputation of its managers has been similarly sullied. On October 27, 2005, shareholders of Refco filed class-action lawsuits against Refco, Thomas H. Lee Partners , Grant Thornton, Credit Suisse First Boston, and Goldman Sachs. On March 2, 2006, a lawyer representing Refco's unsecured creditors began steps to sue the IPO underwriters for aiding and abetting

644-515: A majority of shares of the Österreichische Postsparkasse (P.S.K.) bank, buying 74.82% of the shares from the government. In November 2003, the remaining 25.18% were bought up as well. The merger, which was not finalized until 2005, created the country's third-largest bank group with a balance sheet total of nearly 45 billion euros , 5000 employees, some 2000 outlets (including branches where P.S.K. has been already located) and over one million private customers (2000). The new BAWAG/P.S.K. Group now had

736-457: A non-U.S. hedge fund called Liquid Opportunity. Apparently, Bawag and Liquid Opportunity jointly owned six Anguilla companies, which in turn owned the fake bonds. Refco's attorneys have declined to comment. Apparently, the six Anguilla companies initially responded to Refco's bankruptcy filing as a normal customer would have, filing as creditors with a combined claim of $ 543 million. However, they failed to follow up with any legal filings. This

828-553: A public company on August 11, 2005, with the sale of 26.5 million shares to the public at $ 22. It closed the day over 25% higher than that, valuing the entire company at about $ 3.5 billion. Investors had been attracted to Refco's history of profit growth—it had reported 33% average annual gains in earnings over the four years prior to its initial public offering . Refco Inc. entered crisis on Monday, October 10, 2005, when it announced that its chief executive officer and chairman, Phillip R. Bennett had hidden $ 430 million in bad debts from

920-433: A recapitalization plan for 2015. 0 0 0 0 0 ¹ These banks have a shortfall on a static balance sheet projection, but will have dynamic balance sheet projections taken into account in determining their final capital requirements. 0 0 0 0 0 0 Under the dynamic balance sheet assumption, these banks have no or practically no shortfall taking into account net capital already raised. 0 0 0 0 0 ² Taking into account

1012-481: A similar scam going back at least to 2000, using Bawag P.S.K. Group in the place of Liberty Corner Capital Strategy. The law requires that such financial connections between corporation and its own top officers be shown as what is known as a related party transaction in various financial statements. As a result, Refco said, "its financial statements, as of, and for the periods ended, Feb. 28, 2002, Feb. 28, 2003, Feb. 28, 2004, Feb. 28, 2005, and May 31, 2005, taken as

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1104-444: A whole, for each of Refco Inc., Refco Group Ltd. LLC and Refco Finance Inc. should no longer be relied upon." This announcement triggered a number of investigations, and on October 12 Bennett was arrested and charged with one count of securities fraud for using U.S. mail, interstate commerce, and securities exchanges to lie to investors. His lawyer said that Bennett planned to fight the charges. On October 19, trading of Refco's shares

1196-531: Is divided in two: Finally, Basel III provides additional capital buffers covering more specific risks. European Banking Supervision has been actively involved in the making of Non-Performing Loans action plans. In the ECB guidance recommendations, the SSM, along with the European Banking Authority (EBA), have introduced a new definition of Non-Performing Loans (NPLs) that relates to the optimisation of

1288-497: Is organised by article 26 of the SSM regulation (Council regulation (EU) No 1024/2013). It is composed of all national participating supervisors, a chair, vice-chair and four ECB representatives. These members meet every three weeks in order to draft supervisory decisions then submitted to the Governing Council . The Supervisory Board is assisted in the preparation of its meetings by a Steering Committee. This committee gathers

1380-401: Is presumably good news for other Refco customers, in that $ 543 million in potential claims on the firm's assets have disappeared. The likelihood that the fake bonds represent some kind of ongoing criminal activity does not bode well for the principals of Refco, BAWAG , or Liquid Opportunity. Refco has not enjoyed a clean reputation with regulators. The Commodity Futures Trading Commission and

1472-672: Is proportional to the risks they take. This is closely monitored by the supervisory authorities. Since 2016, if the results of the SREP for a bank do not reflect a proper coverage of the risks, the ECB may impose additional capital requirements to those required by the Basel agreement. This agreement provides a minimum capital requirement (called Pillar 1 requirement) of 8% of banks’ risk-weighted assets .  Since Basel II , extra requirements (called Pillar 2 requirements) can be set in order to cover additional risks. This second category of requirements

1564-461: The European Commission is in charge of checking the impacts such transactions will have on competition and, therefore, on consumers, the ECB is tasked to monitor the risks entailed by the suggested consolidations. If a transaction includes the acquisition of more than 10% of a bank’s shares or voting rights (i.e., a qualifying holding – Regulation 575/2013, Art. 4(1)36), it must be reported to

1656-468: The European Treaties , non-Eurozone countries do not have the right to vote in the ECB's Governing Council and, in return, are not bound by its decisions. As a result, non-Eurozone countries cannot become full members of the banking union (i.e., they cannot have the same rights and obligations as Eurozone members). However, non-Eurozone EU member states can enter into a "close cooperation agreement" with

1748-525: The National Futures Association took action against Refco and its units more than 100 times since the firm's founding. According to The Wall Street Journal , it was "among the most cited brokers in the business, according to data provided by the NFA." In 2001, the NFA ordered Refco to pay $ 43 million to 13 investors after their Refco broker used bogus order tickets to clear trades. On May 16, 2005,

1840-480: The Single Supervisory Mechanism (SSM), is the policy framework for the prudential supervision of banks in the euro area . It is centered on the European Central Bank (ECB), whose supervisory arm is referred to as ECB Banking Supervision . EU member states outside of the euro area can also participate on a voluntary basis, as was the case of Bulgaria as of late 2023. European Banking Supervision

1932-655: The Slovakian bank Istrobanka is bought, a year later the Czech bank Interbanka . Both equities are owned 100% by the BAWAG. The new partners opened up opportunities to expand in retail banking and intended to open new branches throughout Europe. In 2004, BAWAG acquired 100% of the shares of Dresdner Bank CZ , integrating it into the Interbanka, now renamed as BAWAG Bank CZ. The management decided to transfert as much capital as possible from

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2024-473: The financial crisis of 2008 , an increasing number of banks were merging across Europe. This trend stopped as a result of the crisis: between 2008 and 2017, while we saw a decline in the number of cross-border M&As , domestic consolidations (i.e., between two national institutions) rose. In 2016, there were about 6 000 banks in the Eurozone , most of which with a clear focus on their domestic market. Today,

2116-500: The risks taken by European banks . This process, undertaken annually by supervisors from the ECB and Joint Supervisory Teams, is an essential element of the implementation of the Single Supervisory Mechanism . The aim of the SREP is to make sure that banks remain safe and reliable; that any factors that could affect their capital and liquidity are under control. Today, the capital and liquidity levels of banks are then directly subject to an ECB monitoring system while beforehand it

2208-583: The 130 most significant credit institutions in the 19 Eurozone states representing assets worth €22 trillion (equal to 82% of total banking assets of the eurozone). The supervision report included: Based on these three criteria, the review found that a total of 105 out of the 130 assessed banks met all minimum capital requirements on 31 December 2013. A total of 25 banks were found to suffer from capital shortfalls on 31 December 2013, of which 12 managed to cover these capital shortfalls through raising extra capital in 2014. The remaining 13 banks were asked to submit

2300-524: The Betriebsratskredit. At the same period, the bank actively used its finances to sponsor the promotion of Austrian contemporary art and culture. The BAWAG Foundation was established in 1974 with the goal of making art as accessible as possible to all people. The Foundation was closed in 2013. In 1979, parliament amended the Austrian Banking Act ( Kreditwesengesetz or KWG), which now allowed

2392-711: The Chair and the Vice-Chair of the Supervisory Board, an ECB representative (Edouard Fernandez-Bollo since 2019) as well as five deputies of national supervisors. A division of labour has been established between the ECB and national supervisors. Banks deemed significant will be supervised directly by the ECB. Even though the ECB has the authority to take over the direct supervision of any bank, smaller banks will usually continue to be monitored directly by their national authorities. A total of 115 banks are currently being supervised by

2484-399: The ECB is not new. In November 2016, the ECB wrote in its Financial Stability Review the following sentence with regards to the banking sector: “ Consolidation could bring some profitability benefits at the sector level by increasing cost and revenue synergies without worsening the so-called “too-big-to-fail” problem ” (ECB Financial Stability Review, Nov. 2016, p. 75) This positioning of

2576-422: The ECB's staff, national competent supervisors and experts in the banking field, make the link between the national and supranational levels. There is a JST for each significant banking institution. They act as supporting bodies, responsible mainly for the coordination, control and evaluation of supervisory missions. The Supervisory Review and Evaluation Process, also known as ‘SREP’, is a periodic assessment of

2668-585: The ECB, in favor of bigger and more competitive banks in Europe, translates a certain bias of this institution towards the financial industry. This bias can be explained by different power mechanisms at stake: Refco Refco was a New York City -based financial services company, primarily known as a broker of commodities and futures contracts . It was founded in 1969 by Raymond Earl Friedman as R ay E . F riedman and Co . Prior to its collapse in October, 2005,

2760-586: The ECB. As of late 2022, the ECB directly supervised 113 Significant Institutions in the 21 countries within its geographical scope of authority, representing around 85% of the banking system's total assets (excluding financial infrastructures that are designated as LSIs such as Euroclear in Belgium, Banque Centrale de Compensation in France, or Clearstream in Germany and Luxembourg). European Banking Supervision represents

2852-405: The ECB. This procedure is organised by article 7 of the SSM regulation (Council regulation (EU) No 1024/2013) and the ECB decision 2014/510. In effect, these agreements imply the supervision of banks in these signatory countries by the ECB. A close cooperation agreement can be ended either by the ECB or by the participating non-Eurozone member state. Bulgaria , which is in the process of adopting

BAWAG - Misplaced Pages Continue

2944-565: The ECB; all other banks are supervised by their national supervisor. A bank is considered significant when it meets any of the following criteria: This significance status is subject to change due to, for example, mergers and acquisitions. In 2020, two additional banks (LP Group B.V. in the Netherlands and Agri Europe Cyprus in Slovenia ) have joined the list of banks supervised by the ECB. Joint Supervisory Teams (JST), composed of members of

3036-606: The EU level was the creation of the Lamfalussy Process in March 2001. It involved the creation of a number of committees in charge of overseeing regulations in the financial sector. The primary goal of these committees was to accelerate the integration of the EU securities market. This approach was not binding for the European banking sector and had therefore little influence on the supervision of European banks. This can be explained by

3128-501: The European banking landscape is composed of banks with a smaller market share at the EU level than what can be observed in the United States. As a result, the European market is said to be more fragmented and therefore less competitive than in the US or Asia. Cross-border mergers in banking would help banks to diversify their portfolio and, therefore, better recover from localized shocks in

3220-589: The Flowers group withdrew its bid. The business was instead sold to Man Financial on November 10. Man Financial kept the majority of the Refco futures businesses after selling Refco Overseas Ltd (Refco's European operation) to Marathon Asset Management who then relaunched the business as Marex Financial Limited. Though of much smaller size, the regulatory impact of the scandal will be larger than for probably any other corporate failure except for Enron . Refco had sold shares to

3312-636: The Großeinkaufsgesellschaft für österreichische Consumvereine (Austrian consumer associations procurement company) each hold a 40% stake in the bank. However, because of those close ties to the Social Democratic Party of Austria (SPÖ) and labour unions , BAWAG was forced to close in 1934 by the Austro-fascist government of Chancellor Engelbert Dollfuß . It resumed its operations after the end of World War II in 1947. In 1963, it took

3404-404: The SREP, the ECB carries out annual stress tests on supervised banks. In 2016, a stress test was performed on 51 banks, covering 70% of EU banking assets. These banks entered the process with an average Common Equity Tier 1 (CET1, i.e., percentage of Tier 1 capital held by banks) ratio of 13%, higher than the 11.2% of 2014. The test showed that, with one exception, all the assessed banks exceeded

3496-467: The Wall Street Journal's anonymous sources as one of the firms with losses that somehow led to Bennett's $ 430 million debt. Ross Capital is run by Wolfgang Flottl, whose father used to run Bawag P.S.K. Group , an Austrian bank that lent Bennett the money to repay Refco. In 1999, Bawag purchased 10% of Refco in a private transaction, and had an outstanding loan of 75 million euros to Refco at the time

3588-521: The assets in his accounts and assume all the liabilities in order to meet capital requirements, and that he and Refco signed a formal agreement to that effect on Oct. 29, 1997, in the presence of two major law firms and under the close scrutiny of regulators. "There were no debts, loans, or any other financial obligations left open between us," Niederhoffer said. "Refco received considerable assets from us as part of our agreement. I don't know how much money Refco received for these assets, or how it accounted for

3680-479: The bank accounts of about 200 Cuban citizens had been terminated, for "the new owner did not want any trade relation with cubans", in respect of the Helms-Burton Act . After pressure from the government threatening to close its own accounts and initiation of a legal procedure, Ceberus obtained an exemption from the US. government. European Banking Supervision European Banking Supervision , also known as

3772-420: The bank must further protect itself by increasing its equity reserve in the event the loan is not paid. The purpose of this procedure is to increase the bank's resilience to shocks by sharing the risk with the private sector. In other words, addressing the problems associated with PNPs in the future is paramount to consolidating the banking union, while developing lending activity. The new provisions put in place

BAWAG - Misplaced Pages Continue

3864-741: The bank, the new management sold non-strategic assets, like a 43% stake in Austrian TV operator ATV, foreign subsidiaries Istrobanka , to KBC Group in July 2008, BAWAG Bank CZ to Landesbank Baden-Württemberg in September 2008, piano producer Bösendorfer to Yamaha in January 2008 and Stiefelkönig (shoe retailer) in 2011. In January 2022, the US hedge fund GoldenTree, Bawag's main shareholder, sold almost €290 million worth of Bawag shares. The fund reduced its stake by more than half. In 2007, BAWAG hit headlines because

3956-529: The benchmark used in 2014 in terms of CET1 capital level (5.5%). The results of this stress test show that, in 2016, EU banks had a better potential of resilience and shock absorption than in 2014. In 2018, two types of stress tests were performed: an EBA stress test for 33 banks and a SSM SREP stress test for 54 banks. The aggregate results of those tests show that, in 2018, both sets of banks had again strengthened their capital base compared to 2016, increasing their potential of resistance to financial shocks. Due to

4048-480: The capacity of the ECB to monitor 6,000 banks ". The Vice-President of the European Commission at the time, Olli Rehn , responded to that concern that the majority of European banks would still be monitored by national supervisory bodies, while the ECB " would assume ultimate responsibility for the supervision, in order to prevent banking crises from escalating ". The European Parliament voted in favour of

4140-532: The commission, the president of the Central Bank and of the Eurogroup on a preliminary report used as a basis for discussions at the summit. In compliance with the decisions made then, the European Commission published a proposal for a council regulation establishing European banking supervision in September 2012. The European Central Bank welcomed the proposal. Chancellor of Germany Angela Merkel questioned "

4232-488: The company disclosed that it had received a " Wells notice ", indicating it might face charges related to improper short selling at its Refco Securities unit and other matters. The company had been implicated in naked short sales on the stock of a company called Sedona Corp. , disclosed that it was negotiating with the SEC and hoped to reach a settlement that would likely include an injunction against future violations and "payment of

4324-445: The company's auditors and investors, and had agreed to take a leave of absence . Refco said that through an internal review over the preceding weekend it discovered a receivable owed to the company by an unnamed entity that turned out to be controlled by Mr. Bennett, in the amount of approximately US$ 430 million. Apparently, Bennett had been buying bad debts from Refco in order to prevent the company from needing to write them off, and

4416-458: The company's failure to disclose information that would have discouraged Bawag from lending the money to Bennett. The Austrian National Bank and Financial Market Authority were investigating Bawag's involvement with Refco. The apparent fraud was caught by Peter James, Refco's newly hired controller . Apparently, in the fiscal quarter before the story broke, Bennett failed to execute his temporary Liberty Strategies-hidden repayment of debt. This left

4508-566: The completion of the banking union, stalled since June 2022, also includes options for the regulatory treatment of sovereign exposures. The question of supervising the European banking system arose long before the financial crisis of 2007-2008 . Shortly after the creation of the monetary union in 1999, a number of observers and policy-makers warned that the new monetary architecture would be incomplete, and therefore fragile, without at least some coordination of supervisory policies among euro members. The first supervisory measure put in place at

4600-422: The conservative government of Wolfgang Schüssel . This has cast doubts about the future of links between the socialist-led unions and the bank. The losses came from a series of failed bets using risky derivative investments held in off-balance-sheet vehicles. Though the bets go back as far as 1998, they surfaced only in 2006 during U.S. investigations into the bankruptcy of Refco. Also, Bawag lent Phillip Bennett,

4692-528: The coronavirus pandemic, the 2020 stress test has been postponed to 2021. The results of this test should be published by the end of June 2021. All 20 eurozone member states automatically participate in European Banking Supervision. Croatia , being the latest country to join the Eurozone on 1 January 2023, was accordingly added to the scope of application of European Banking Supervision. Under

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4784-538: The disposal of the NPLs by the banks. The main purpose is to integrate the multidimensional framework that the banks use in their evaluation process in the comprehensive assessment by the Supervisory Authority. A bank loan is non-performing when the 90-day period is exceeded without the borrower paying the due amount or the agreed interest. If customers do not follow the agreed upon repayment terms for 90 days or more,

4876-415: The economy. On the other hand, spreading risks across different geographies could also be a threat to the stability of financial markets: one might, indeed, worry of a potential effect of contagion between regions. Such transactions could also lead to the creation of groups regarded as “ Too big to fail ”, which, in case of systemic crises, would require significant support from the public purse. Following

4968-421: The euro currency, signed a close cooperation agreement with the ECB in 2020. Croatia likewise had a close cooperation agreement with the ECB prior to joining the eurozone. The European Central Bank (ECB) has the leadership in European banking supervision. A strict administrative separation is foreseen between the ECB's monetary and supervisory tasks. However, final decision-making on both matters takes place in

5060-729: The fact that the European treaties did not allow the EU, at the time, to have real decision-making power on these matters. The idea of having to modify the treaties and of engaging in a vast debate on the Member States’ loss of sovereignty cooled down the ambitions of the Lamfalussy process. The financial and economic crisis of 2008 and its consequences in the European Union  incentivized European leaders to adopt a supranational mechanism of banking supervision. The main objective of

5152-454: The financial system as a whole ”. The ESFS brought together, in an unconventional manner, the European and the national supervisory authorities. Despite the creation of this new mechanism, the European Commission considered that, having a single currency, the EU needed to go further in the integration of its banking supervision practices. The idea was that the mere collaboration of national and European supervisory authorities

5244-471: The firm collapsed. On October 5, before news of the hidden loan was made public, Phillip Bennett applied for a 350 million euro loan, to be collateralized with his shares in Refco. The loan was granted on October 10, and Bennett used it to pay off the hidden $ 430 million. The Refco stock that collateralized the loan is now worthless, and on November 16, Bawag joined the line of people suing Refco, demanding 350 million euros plus punitive damages in compensation for

5336-493: The firm had over $ 4 billion in approximately 200,000 customer accounts, and it was the largest broker on the Chicago Mercantile Exchange . The firm's balance sheet at the time of the collapse showed about $ 75 billion in assets and a roughly equal amount in liabilities. Though these filings have since been disowned by the company, they are probably roughly accurate in showing the firm's level of leverage. Refco became

5428-433: The former chief executive of Refco, hundreds of millions of dollars just before the brokerage filed for bankruptcy protection in October 2005. As a result of the losses and subsequent investigations, criminal charges were filed against a number of BAWAG executives. Several people were found guilty and convicted. Helmut Elsner, former chief executive of Bawag, was found guilty of breach of trust, fraud and false accounting and

5520-553: The fourth largest bankruptcy filing in American history. However, the company subsequently submitted a revised document, claiming it had $ 16.5 billion in assets and $ 16.8 billion in liabilities. Refco also announced a tentative agreement to sell its regulated futures and commodities business, which is not covered by the bankruptcy filing, to a group led by J.C. Flowers & Co. for about $ 768 million. However, other bidders soon emerged, including Interactive Brokers and Dubai Investments ,

5612-411: The fraud, or for breach of fiduciary duty. In April 2006, creditors sued Bawag P.S.K. Group for more than $ 1.3 billion. In April 2006, Christie's auction house sold Refco's prized art collection, which included photographs by Charles Ray and Andy Warhol . On February 15, 2008, Phillip R. Bennett pleaded guilty to 20 charges of securities fraud and other criminal charges. On July 3, 2008, Bennett

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5704-465: The governance mechanism at stake (e.g. what the skills and experiences of the leadership are). With this communication, the ECB also took the initiative to clarify how it was computing the capital requirements of the new entity and how it would assess the quality of this new body's assets . According to two PwC analysts, the publication of this document by the ECB seems to indicate that it wishes to encourage banking consolidation. This position from

5796-584: The holding to the operative bank, so that a 1,5billion euro debt of the ÖGB were inherited by the bank. The Bayerische Landesbank sold its 46% share in 2004 to the other shareholder, the Austrian Trade Union Federation (ÖGB). With that deal, the ÖGB became sole owner of the BAWAG. Since the Refco scandal in October 2005, which involved bad loans in the amount of 425 million euros, the bank almost defaulted on its obligations and had to be bailed out by

5888-445: The initial and so far most complete component of the broader banking union , a project initiated in 2012 to integrate banking sector policy in the euro area. The unfinished piece of the banking union agenda is about crisis management and resolution, for which the so-called Single Resolution Mechanism coexists with national arrangements for deposit insurance and other aspects of the bank crisis management framework. The policy agenda on

5980-565: The investment division of the emirate of Dubai . These offers were for a time rebuffed, as the Flowers-led group had a right to a break-up fee if Refco had sold this business to anyone else. Carlos Abadi, involved in the Dubai bid, said that the Dubai-led group offered $ 1 billion for all of Refco and was rejected. However, the bankruptcy judge in charge of the case deemed the break-up fee unjustified, and

6072-564: The largest centrally managed sales network in Austria. With the combined assets, the new group BAWAG/P.S.K. experienced further growth. The piano manufacturer Bösendorfer was bought from the American company Kimball International in 2001. Since the fall of the Iron Curtain and the prospect of an accession of Central- and East European countries to the EU , new market opportunities open up. In 2002,

6164-641: The legislative proposal on the 12th of September 2013. The Council of the European Union gave its own approval on the 15th of October 2013. The SSM Regulation entered into force on the 4th of November 2014. The fact that European Banking Supervision is formulated as a regulation and not a directive is important. Indeed, a regulation is legally binding and Member States do not have the choice, unlike for directives, of how to transpose it under national law. The ECB published its first comprehensive assessment on 26 October 2014. This financial health check covered

6256-505: The management structure or the need of holding more capital especially in times of financial crisis ). These actions shall normally be fulfilled by the following year. In case of non-compliance with these requirements, the ECB can charge a fine up to the double of the profits (or losses) which have been generated (or caused) by the breach and that can amount up to 10% of these banks’ annual turnover . The ECB can also request national authorities to open proceedings against these banks.  In

6348-511: The money back to Refco, leaving Liberty as the apparent borrower when financial statements were prepared. It is not yet clear if Liberty knew it was hiding scam transactions; management of the fund has claimed that they believed it was borrowing from one Refco subsidiary and lending to another Refco sub, and not lending to an entity that Mr. Bennett secretly controlled. On October 20, they announced plans to sue Refco. In April 2006, papers filed by creditors of Refco seemed to show that Bennett had run

6440-531: The name of Bank für Arbeit und Wirtschaft AG (BAWAG, translatable as "Bank for Labour and Business"). The bank continued to have close relations to social democratic party SPÖ and the unions. The Austrian Trade Union Federation (ÖGB) retained 70% of the shares, the other 30% were held by the Konsum retail cooperative chain. In the 1970s, popular products were the Kapitalsparbuch (fixed-term savings passbook) and

6532-456: The national competent authority of the Member State in which the bank is established. This national authority must then conduct an assessment of the deal and forward its conclusions to the ECB, which is the final decision-maker, validating (with or without conditions) or refusing the transaction (Council Regulation No 1024/2013, Art. 15). In 2020, the ECB published a document aiming to clarify

6624-480: The new supervisory mechanism was to restore confidence in financial markets. The idea was also to avoid having to bail out banks with public money in case of future economic crises. To implement this new system of supervision, the President of the European Commission in 2008, José Manuel Barroso , asked a group of experts to look at how the EU could best regulate the European banking market. This group

6716-410: The operation of branches. The BAWAG experienced rapid expansion throughout Austria, from an existing network of 26 offices to 120 by 1982. The shareholder Konsum went bankrupt in 1995, which sent shockwaves through the political landscape in Austria, especially for the social democrats. The Bayerische Landesbank bought the shares and increased its stake to 46%. In 2000, BAWAG successfully took over

6808-491: The orderly resolution plan of this institution, which benefits from a State guarantee, there is no need to proceed with additional capital raising. This is the only time where a comprehensive assessment has been done for the 130 banks supervised by the ECB. Since 2014, only a few numbers of banks have been comprehensively assessed by the ECB: 13 in 2015, 4 in 2016 and 7 in 2019. These comprehensive assessments are conducted either when

6900-463: The position on the books for James to find. It is unclear why the firm's chief financial officer had not spotted the loan, but the firm's previous CFO, Robert Trosten, left Refco in October, 2004 with a $ 45 million payout that was not disclosed in the firm's IPO prospectus. He was under investigation by regulators, who suspected he may have known something about Bennett's malfeasance. Robert C. Trosten pleaded guilty to five charges in 2008. Tone N. Grant,

6992-526: The potential of reducing the exposure of individual firms to localized shocks, studies show that they also increase systemic risks on financial markets. In the attempt to mitigate those risks, the ECB is, since 2013, responsible (as part of the Single Monitoring Mechanism), with the European Commission , for assessing the soundness of banking mergers (Council Regulation No 1024/2013, Art. 4). While

7084-409: The previous year and  after each cycle, there is an individual evaluation. Based on these assessments and simulations, supervisors write a report on the vulnerability of European banks, with a score ranging from 1 (low risk) to 4 (high risks), and list concrete measures for these banks to take. These measures can be quantitative - related to capital or liquidity, or qualitative (e.g., a change in

7176-464: The public in a public offering only two months before revealing the apparent fraud. Their auditors ( Grant Thornton ) and the investment banks that handled the IPO, Credit Suisse First Boston , Goldman Sachs , and Bank of America Corp. , all supposedly completed due diligence on the company, and all missed the CEO's hiding $ 430 million in bad debts. Their largest private investor was Thomas H. Lee Partners ,

7268-636: The same body: the Governing Council. The Governing Council is the main decision-making entity of the ECB. It comprises the members of the Executive Board of the European Central Bank and the governors of all national central banks of the Eurozone 's member states. The Governing council is in charge, based on the opinion drafted by the Supervisory Board, of taking formal decisions with regards to its supervisory mandate. The Supervisory board

7360-468: The terrible consequences of the Lehman Brothers ’ fall in 2008, public authorities seem committed to avoid the collapse of other systemic banks. One of the side effects of these public guarantees is to encourage moral hazard : protected by a public net, these financial institutions are incentivized to adopt riskier behaviors. As this opposition of opinions illustrates, if cross-border mergers might have

7452-608: The transaction, or whether it ended up with a profit or loss. If Refco did suffer a loss, I am confident that it was quite minimal relative to the $ 460 million receivable said to have been a key link in the firm’s debacle, or to the actual sums that the principals and key players of the firm took out many years later." The story in the Journal implies that Refco settled Niederhoffer's debt for positions that were worth less than he owed them, or perhaps that they accrued trading losses unwinding those positions. Ross Capital has also been named by

7544-461: The way they were assessing such transactions, with the objective of being more transparent and predictable. Even though transactions are assessed on a case-to-case basis, the supervision process of these deals follow the same three stages: In phase two, the ECB pays particular attention to the sustainability of the suggested business model (e.g., under which assumptions it has been built, what has been planned in terms of IT integration, etc.) and to

7636-658: The worst case scenario, when a bank is likely to fail, the second pillar of the European Banking Union , the Single Resolution Mechanism , enters into play. Eventually, even though the methodology and the timeframe are identical for banks, the actions to take can significantly differ among them as well as the sanctions. As banks can take considerable risks , holding capital is essential to absorb potential losses, avoid bankruptcies and secure people’s deposits . The amount of capital banks should hold

7728-668: Was established by Regulation 1024/2013 of the Council, also known as the SSM Regulation , which also created its central (albeit not ultimate) decision-making body, the ECB Supervisory Board . Under European Banking Supervision, the ECB directly supervises the larger banks that are designated as Significant Institutions. The other banks, known as Less Significant Institutions, are supervised by national banking supervisors ("national competent authorities") under supervisory oversight by

7820-537: Was finally chosen in December 2006, beating competitors Bayerische Landesbank , Allianz and Lone Star Funds , and who bought 90% of BAWAG for €3.2 billion. Other shareholders are the Österreichische Post (5%), Generali (2-3%), the Wüstenrot-Gruppe (1%) and Hannes Androsch . Initially, BAWAG P.S.K. pursued a 2 brands strategy, progressively switching to the joint brand BAWAG PSK in 2007. In order to transform

7912-514: Was halted on the New York Stock Exchange , which later delisted the company. Before the halt, Refco shares were trading for more than $ 28 per share, and as of October 19, they had dropped (on the pink sheets ) to $ 0.80 per share. Refco, Inc. filed for Chapter 11 for a number of its businesses, to seek protection from its creditors on Monday, October 17, 2005. At the time, it declared assets of around $ 49 billion, which would have made it

8004-509: Was heterogeneously done at a national level. This evaluation is based on the monitoring of four different areas: In addition, each year, the European Central Bank is, under European Union law , obliged to perform at least one stress test on all supervised banks. This test will be part of the annual SREP cycle. Stress tests are computer-simulated techniques which evaluate the capacity of banks to cope with potential financial and economic shocks . Annual SREP cycles are based on data from

8096-612: Was led by Jacques de Larosière , a French senior officer who held, until 1978, the position of Director General of the Treasury ;in France. He was also President of the International Monetary Fund from 1978 to 1987, President of the “ Banque de France ” from 1987 to 1993 and President of the European Bank for Reconstruction and Development from 1993. On a more controversial stance, Jacques de Larosière has also been

8188-529: Was not enough and that the EU needed a single supervisory authority. The European Commission therefore suggested the creation of the Single Supervisory Mechanism. This proposal was debated at the Eurozone summit that took place in  Brussels on 28 and 29 June 2012. Herman Van Rompuy , who was president of the European Council at the time, had worked upstream with the president of

8280-416: Was paying for the bad loans with money borrowed by Refco itself. Between 2002 and 2005, he arranged at the end of every quarter for a Refco subsidiary to lend money to a hedge fund called Liberty Corner Capital Strategy, which then lent the money to Refco Group Holdings, an independent offshore company secretly owned by Phillip Bennett with no legal or official connection to Refco. Bennett's company then paid

8372-525: Was sentenced to 16 years in federal prison. Though no detailed report on Bennett's transactions has yet been made public, anonymous sources cited by The Wall Street Journal and other publications have stated that the debt stemmed from losses in as many as 10 customer trading accounts, including that of Ross Capital, and the widely reported October 27, 1997, trading losses of hedge fund manager Victor Niederhoffer . Niederhoffer said on his website in response to these news articles that Refco wanted to take over

8464-560: Was sentenced to nine and a half years in prison. The judge also ordered him to repay Bawag €6.8 million in pension benefits. The defendants also included the Bawag executive Johann Zwettler and the investment banker Wolfgang Flöttl, who was based in the United States. Zwettler was given a five-year sentence. Flöttl was sentenced to 10 months. Six others were given various sentences. As BAWAG's shareholders were also facing financial trouble, ÖGB decided to sell its entire stake in March 2006. Cerberus

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