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Free movement of capital: Commission requests Austria to amend rules on co-operative banks' liquidity reserves

European Commission - IP/02/1676   14/11/2002

Other available languages: FR DE

IP/02/1676

Brussels, 14th November 2002

Free movement of capital: Commission requests Austria to amend rules on co-operative banks' liquidity reserves

The European Commission has sent a formal request to Austria to remove restrictions on investment of banks' liquidity reserves in the co-operative banking sector. The Commission considers that a provision of the Austrian Banking Law - stipulating that certain credit institutions affiliated to a central institution must hold their liquidity reserve with the latter - constitutes an unjustified restriction on the free movement of capital in violation of EU Treaty rules (Article 56). The request takes the form of a so-called 'reasoned opinion', the second stage of formal infringement proceedings under Article 226 of the EC Treaty. If the rules are not changed to the Commission's satisfaction within two months, the Commission may refer the case to the Court of Justice.

According to section 25 (13) first alinea of the Austrian Banking Law (Bankwesengesetz), credit institutions affiliated to a central institution must hold with the latter a liquidity reserve equivalent to 10% of savings deposits and 20% of other euro deposits, but no more than 14% of total euro deposits. Under this provision, local credit co-operatives, so-called 'Primärbanken', are not free to place their liquid resources with other European financial institutions, including those in the euro-zone of which Austria is part. Instead, they are forced to hold their reserves with their central institutions, and according to terms set by them.

The Commission considers that while it might be necessary to ensure that local credit co-operatives have sufficient liquidity to meet their payment obligations at all times, the particular obligation to hold the liquidity reserves with their central institution cannot be justified by any imperative requirement in the general interest. This obligation is also disproportionate because it is neither suitable nor necessary for attaining the objective pursued and consequently constitutes an unjustified restriction on the unconditional freedom of capital movement, Article 56 of the EC Treaty.

The Commission's "Communication on certain legal aspects concerning intra-EU investments" (see IP/97/477) specified that, according to Community law, restrictions on the free movement of capital should be applied without discrimination, be justified on imperative requirements in the general interest, be suitable for securing the attainment of the objective that they pursue and, finally, must not go beyond what is necessary in order to achieve the defined objective. The Court of Justice has confirmed this in its rulings of 4 July 2002 in cases C-367/98 Commission v Portugal, C-483/99 Commission v France and C-503/99 Commission v Belgium.

The Commission is of the view that the provision of the Austrian Banking Law does not fulfil the above requirements:

  • the provision cannot be justified by any imperative requirement in the general interest. While Article 58 (1) b of the EC Treaty allows for such justification based on grounds of public policy, according to the case law of the Court of Justice, the concept of public policy must be interpreted restrictively and objectives of an economic nature cannot constitute grounds of public policy (case C-35/98 Staatssecretaris van Financiën v B.G.M. Verkooijen). Consequently, economic considerations such as protecting local providers within the co-operative banking structure do not represent imperative requirements in the general interest.

  • taking into account the existing Community framework safeguarding credit institutions' liquidity, the Austrian provision is inappropriate because it is not suitable for attaining the objective it pursues.

  • given the possibility open to local entities within the co-operative banking sector to safeguard liquidity internally, it is not necessary to delegate investment responsibilities and reserve holder duties to central credit institutions. Because it goes beyond what is necessary to attain that objective, the provision is disproportionate.

In conclusion, the Commission considers that the provision of the Austrian Banking Law forcing certain credit institutions to hold their liquidity reserves with their central institution unduly restricts their freedom of capital movement as enshrined in Article 56 of the Treaty.

The latest general information on infringement proceedings against the Member States can be found at:

http://europa.eu.int/comm/secretariat_general/sgb/droit_com/index_en.htm


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