The Banking Scandal: How Austrian Banks Are Profiting at the Expense of Customers

The joke is as simple as it is evil: the banks are ambushing everyone who is in debt (and has variable interest rates) to pass on the rate hikes. However, interest rates on savings hardly increase at all. The profits of the banks are gushing out of this interest rate gap. And: The Austrian banks have themselves stored money at the ECB. They have collected almost two billion euros in interest since August 2022. For the same amount of deposits, Austrian customers only received 358 million euros in interest.

With this business, the domestic banks have earned more than 1.5 billion euros. Net. And because that’s still not enough, they have also increased the account management fees in this country far above inflation. This means that the banks earned EUR 2.1 billion more last year than in the previous year.

Now Vice-Chancellor Werner Kogler is wondering whether “everything is still fair and reasonable”. He is at least one step ahead of his government colleague, Finance Minister Magnus Brunner. What he wants from the banks: better customer friendliness.

The suggestions of many economists go in a similar direction. They recommend to us: “Just solve it yourself!” The customer must finally start comparing conditions. The competition would ensure that the banks would also pass on the high interest rates to savers. A quick online check shows that the bank’s account offers praise their supposedly low account management fees. But if you are looking for interest rates, you need more time. Many clicks and a download later you will find what you are looking for in the small print. Bank Austria, for example, one of the largest banks in Austria, currently offers a whopping 0.0000 percent credit interest per year.

That doesn’t have to be the case, as France shows. The vast majority of French people put their hard-earned money in a kind of people’s savings book, the Livret A. They can save up to 22,950 euros with a state-determined interest rate. It is currently three percent – and the deposits are available daily.

Actually, it should have been the absolute priority of all political parties for at least 15 years to put the capital market on a leash. At that time, the American real estate credit bubble burst. To be more precise: the legal business model of lending money to people where it is already clear at the time it is taken out that many people will not be able to do it. At that time, the bubble triggered a global economic crisis; the US government had to bail out some of the biggest banks with billions in taxpayers’ money to prevent the collapse of the real economy. And with full knowledge of the scandalous practices that led to it.

In the Austrian variant, Hypo Alpe Adria and Kommunalkredit have been absorbed by the state. Motto: “Privatize profits, socialize losses.” That cost taxpayers 14 billion euros. And the hastily introduced bank levy only recouped just under four billion euros.

The lesson to be learned would be to limit the banks’ room for manoeuvre. Those who have to be rescued by the state as “systemically important” also have a social responsibility. Austria is threatened with a recession – which also threatens the creditworthiness of private individuals and small companies. It is therefore high time to act.

Historically, by the way, a matter of course, not just to watch: Even the market-radical British Prime Minister Margaret Thatcher clawed back random profits from banks with a special tax in the 1980s. Her sober summary: “Of course, the banks vehemently resisted, but the fact remained that they had made their high profits from high interest rates and not from increased efficiency or better service for customers.”

Other countries are also taking action today: the Spanish tax on interest, for example, flushed almost half of the profits from the market leader back into the state coffers; Hungary has introduced a sensitive special tax – which, however, is aimed primarily at foreign banks in line with the nationalist course of the Orbán government. In contrast, the Italian levy, which is limited to a maximum of one-thousandth of the balance sheet total, is more symbolic. One thing is the same everywhere: the conservative guardians of the high bank profits are coming under pressure from both sides, from the center left and from the far right. You will have to deliver. Also in Austria.