Cross-border crisis management in banking sector Stanisław Kluza, Ph.D. Chairman Komisja Nadzoru Finansowego – Polish Financial Supervision Authority www.knf.gov.pl/en Plac Powstańców Warszawy 1, 00-950 Warsaw knf@knf.gov.pl

Who should pay for falling banks? Taxpayers? Subsidiaries? Reformed EU Safety net? - Regulation of SIFIs - Proper management of liquidity - Well funded network of DGSs with resolution functions financed by the industry

Clear Regulation of SIFIs Too big to fail – too expensive to rescue The size of the financial institution should not eliminate the risk of bankruptcy The risk generated by SIFIs surpasses the abilities of guarantee systems and state budgets to absorb it. Failure of major institutions should be allowed to preserve the competition within the market. Clear need to limit the size of financial institutions. Systemic risk related to the size of SIFIs should not prevent them from going bankrupt in case of insolvency. The taxpayers should never again bear the costs of saving financial institutions. 2008 Bailout vs. other large government projects $4.616.000.000.000 Slajd 3 wersja 3 Source: www.voltagecreative.com/blog 3

Liquidity determines the ability to cover liability Liquidity challenge Liquidity determines the ability to cover liability Total: £108 245 mln mln Lack of the possibility to cover liabilities triggers bankruptcy procedure. Solvency margin describes the safe ratio between capital and financing means, liquidity is needed to cover current liabilities. CRD provisions do not specify liquidity standards for banks but some Member States introduced such standards within their markets (PL in 2008). Proper supervision over liquidity of credit institutions is an essential element needed to enable for cross-border crisis management. Slajd 3 wersja 3 4

EU guarantee schemes net should limit moral hazard A network of DGSs financed by banks is an alternative for engaging taxpayers in rescuing banks Why the parent institution should be excluded from the responsibility borne by local institutions that finance the DGS of its cross-border subsidiary? Designing appropriate ties between national DGS can establish the EU network of DGS. The ties should reflect the structure of banking groups to allow cross-border support. If one EU wide DGS existed before crisis, it would have to cover claims amounting to 3 309 bn Euros. Could we afford it? Deposits within the EU should be better protected by the EU safety net. Slajd 3 wersja 3