Austrian banks are heavily engaged in Central and Eastern European (CEE) markets
primarily by running local subsidiaries but also by extending cross-border loans.
We give an account of the historical development and the status quo of these exposures
and conduct a stress test for the Austrian banking system with respect to its credit
exposure vis-à-vis the CEE region. Our test is based on an analysis of the current
state of the local banking systems from a risk perspective, inter alia drawing on
stress testing experiences gained by the national central banks and the International
Monetary Fund. We use a stress scenario that (i) takes account of the differences
in host country risks and (ii) represents a worst case that deliberately exceeds
historical shocks. It turns out that, despite the dramatic worsening of the economic
environment implied by the scenario, the Austrian banking system is not put at risk
by the hypothesized crisis. The possible repercussions of a crisis in a single country
via solvency problems of the Austrian parent institution turn out to be well limited.