1. M. Singer – The CNB‘s view of the banking union 1 M. Singer – Bankovní unie očima CNB 1 M. Singer – Recent Developments in the Czech Economy and CNB Forecast 1 M. Singer – Recent Developments in the Czech Republic and Outlook 1 M. Singer – Macroeconomic developments in the CR and GDP growth comparisons 1 M. Singer – Macroeconomic developments, monetary policy and financial sector 1 M. Singer – The Czech economy and crisis in Eurozone: CNB view 1 M. Singer – Czech economy and development in Europe: Outlook and Challenges 1 M. Singer – Czech Republic: Can record low rates be sustained? 1 M. Singer – Czech Republic: Future challenges and opportunities 1 M. Singer – Present Conditions, Monetary Policy and Outlook in Czech Republic 1 M. Singer - Czech Republic: Staying Ahead of the Curve with Regard to Monetary Policy 1 M. Singer: The economic and financial crisis from the point of view of the Czech banks 1 M. Singer: Financial Crisis: Impacts on the CR and Lessons for the Supervisors 1 M. Singer: Financial Crisis: Likely Impacts on the CR and Lessons for the Supervisors M. Singer: Present Conditions, Monetary Policy and Outlook for CR 1M. Singer: Consumer protection in financial services: CNB approach 1 The CNB’s view of the banking union Introductory notes for panel discussion 19th Dubrovnik Economic Conference Dubrovnik, 13 June 2013 Miroslav Singer Governor, Czech National Bank

2. M. Singer – The CNB‘s view of the banking union 2 Why is the banking union being created? Euro area is economically heterogeneous (similarly heterogeneous as USA, maybe even more so) Consequently, it needs fiscal transfers on similar scale to USA (but has no option of tax federalisation!) Yet transfers of this magnitude are unacceptable to voters in North Future of euro area depends on cutting links between banks and public budgets BU is attempt define mechanisms that will allow fiscal transfers in form acceptable to Northern countries (particularly Germany) The Bulgarian lev, Swedish krona and Czech koruna zones, for example, do not need the BU. They exist within the borders of single nation states, which give them the institutions they need to sustain their own currencies. The point of the BU is to preserve the euro area!

3. M. Singer – The CNB‘s view of the banking union 3 Core elements of the BU according to the EC 1. Single Supervisory Mechanism (SSM) under ECB 2. Single European Resolution Mechanism (SRM), probably with single resolution authority 3. Single European Deposit Guarantee Scheme (DGS) 4. Possibility of direct recapitalisation of banks from ESM funds 5. Single rules of regulation for banks – but it is the common market, not the BU, that needs single rules! The most important pillars of the BU have yet to be created and their final form is still not known

4. M. Singer – The CNB‘s view of the banking union 4 Single Supervisory Mechanism Creation of SSM will mean transfer of some micro- and macro- prudential powers from national supervisory authorities to ECB (some tasks will be delegated to national supervisors) All banks domiciled in euro area (around 6,000) will be subject to ECB supervision; banks supported from EFSF/ESM; 140 “systemically important banks”, i.e. around 80% of bank assets in EU, will be subject to direct ECB supervision Direct ECB supervision will take about 1 year to get up and running ECB Supervisory Board chairman will be proposed by ECB; candidate will have to be approved by European Parliament and decided by EU Member States (Ecofin) Putting the ECB in charge of banking supervision is giving rise to many demands and will lead to the ceding of the bulk of powers to the European level

5. M. Singer – The CNB‘s view of the banking union 5 Predicted/expected benefits of the SSM for participating countries Breaking of vicious circle between bank solvency and sovereign debt (in countries where banks operate) through direct recapitalisation of banks from ESM – this assistance is conditional on establishment and effective operation of SSM Unified and cross-border supervision of credit institutions Enhanced supervision of financial sector for some states of euro area (southern periphery) and overall reduction in number of interventions to support banks in euro area The establishment of the SSM may contribute to increasing the effectiveness of banking supervision in the euro area

6. M. Singer – The CNB‘s view of the banking union 6 Risks and uncertainties for participating countries Two main uncertainties:  Who will pay for recapitalisation of euro area banking sector?  Will SSM be good enough even with better capital buffers? Moral hazard – expectation that EU will (“this time”) cover costs of bank failures Weaker pressure for structural reform of economies Weaker pressure for reform of banking sectors that currently have too many banks of questionable viability Loss of powers and responsibilities of national supervisory and resolution authorities for financial stability and market functioning Even this mechanism is likely to become unacceptable to Northern constituencies if transfers through quasi-fiscal channels of the BU become too frequent

7. M. Singer – The CNB‘s view of the banking union 7 Stance of the CNB We support mechanisms leading to stabilisation of euro area However, Czech koruna does not need BU Euro area must primarily help itself; resources of all EU Member States put together are not enough to stabilise it Czech financial sector is highly specific in EU in being liquid and well capitalised; despite being based on host principle it is net creditor of euro area financial sector Therefore: We support the creation of the BU in the euro area We want to eliminate the risk of institutions from our financial sector being drawn into the euro area crisis We want to retain the current balance of powers in the EBA and other institutions between euro area and non- euro area countries and home and host institutions

8. M. Singer – The CNB‘s view of the banking union 8 Broad position of the Czech Republic: What have we pushed through? Final word of national authorities in decisions on fund sharing within cross-border groups and deposit insurance schemes  currently open question Final word of national authority on conversion of subsidiary of foreign bank in non-BU state into branch  recital in SSM text (in CNB’s opinion may not give sufficient guarantees) Revision of EBA voting rules to prevent systematic outvoting of non-participating states  OK Limitation of ECB’s financial stability mandate to participating states only  hopeful The Czech Republic has succeeded only in pushing through a satisfactory revision of voting in the EBA

9. M. Singer – The CNB‘s view of the banking union 9 Banking union: summary CNB will continue to try to:  assist in creation of BU  eliminate risks associated with other proposed elements of BU (with due regard to specifics of Czech banking sector)  retain symmetry between supervisory powers and responsibility for financial sector stability in Czech Republic If Czech Republic (as non-euro country) were to join SSM:  it would cede banking supervisory powers  it would not be able to vote in key ECB decision-making body (Governing Council), only in Supervisory Board  it would not be entitled to assistance from ESM, which is only for euro area member countries CNB believes that country that will not be BU member should not contribute to BU’s operating costs and to risk sharing The CNB does not currently see any reason for the Czech Republic to join the banking union

10. M. Singer – The CNB‘s view of the banking union 10 Thank you Miroslav Singer Miroslav.Singer@cnb.cz Tel: +421 224 412 000 Česká národní banka Na Příkopě 28 115 03 Praha 1