Austrian Banks Carry €2.6 Trillion in Derivatives - Risk Unknown To Central Bank

Austrian banks may be sitting on a €2.6 Trillion off balance sheet derivatives time bomb and the central bank does not know how much risk is involved in these trades.
Oesterreichische Nationalbank (OeNB) governor Ewald Nowotny said in a live chat of Austrian daily "Der Standard", he could not provide a material ad hoc figure for the actual net risk of these trades.

According to a (German language only) press release from last Thursday off balance sheet derivatives volume grew a stunning 13% to a record volume of €2.586 Trillion at the end of H2 2010 in Austria. This is roughly 2.5 times as much as the nationwide balance sum of all banks which stood barely unchanged at €1.037 Trillion in the same period.
It also has to be noted that this growth comes at a time of global de-leveraging and may indicate that Austrian banks try to make up for loan losses in Central Eastern Europe with bets on interest rates and currencies.

80% of derivatives are hedges/bets on interest rates and 20% are currency and gold derivatives.
As a side note: It is interesting to see that the OeNB considers gold a currency, after German authorities had said otherwise earlier in a rather idiotic move.

Risk May Lie Somewhere Between €125 And €250 Billion

According to industry insiders the actual risk after netting out short and long contracts may lie somewhere between 5% and 10% or €125 billion to €250 billion. In comparison Austria's GDP came in at €274 billion in 2009.

Nowotny said he hoped that the EU would realize a central clearing institution for derivatives as soon as possible.

This may take a few years, though. Although the EU has been talking about stricter derivative regulation, not a single step of action has been taken since the onset of the crisis more than 3 years ago.
This may originate in the common fear - one of the last things uniting Europe these days - that all European banks would suffer heavily if they were to bring OTC derivatives on their balance sheets. This is a safe speculation.

Toni Straka

Editor, the Prudent Investor

Toni Straka is an INDEPENDENT Certified Financial Analyst (OeVFA, EFFAS) who worked as a financial journalist for 15+ years and now evaluates global market trends. Analyzing financial and political news permanently he wants to share his insight with those who understand that we are in an era of global redistribution of wealth. The US-European centric approach does not work anymore. Five billion people in the developing countries now demand their fair share of the world's resources.