The stability of the banking sector is essential for the overall health of a nation’s economy. In recent years, the Polish banking sector has seen its share of challenges, with some banks facing fines and accusations of wrongdoing. International bank creditors seeking to invest in Poland may have concerns regarding bank failures, supervision, and resolution planning. Banking law in Poland is primarily governed by the Banking Act of 29 August 1997, which outlines the rules and regulations for operating banks and credit institutions. In addition, the Resolution of Credit Institutions and Investment Firms Act of 10 June 2016 focuses on bank failure and resolution procedures. This legal framework is designed to ensure the stability and security of the Polish financial sector and is compliant with European Union regulations.

Several Polish banks and credit institutions have faced substantial fines for wrongdoing. Notable examples include Bank Pekao, which was fined PLN 50.8 million in 2020 for malpractices in granting mortgage loans, and ING Bank Śląski, which received a fine of PLN 2.5 million in 2019 for AML/CFT deficiencies. These banks have not been shut down as the penalties served to penalize misconduct while allowing them to correct their practices and maintain stability in the banking sector.

Bank Failure in Poland

Bank failure in Poland is defined as a situation where a bank is unable to meet its financial obligations, becomes insolvent, or poses a significant risk to the financial system. The Polish Financial Supervision Authority (PFSA) is responsible for monitoring and supervising banks and determining bank failures. This assessment is based on criteria such as capital adequacy, liquidity, solvency, and the quality of the bank’s management.

The PFSA has the legal mandate to conclude that a bank has failed or is likely to fail. This decision is based on a comprehensive assessment of the bank’s financial situation, adherence to regulations, and potential risks to the financial system. The PFSA may impose corrective measures, sanctions, or resolution actions to address the situation.

Once a bank failure is concluded, the PFSA initiates a resolution process to preserve the critical functions of the bank and ensure the continuation of the organization. Common reasons for bank failure in Poland include poor management, inadequate capital and liquidity, and non-compliance with regulatory requirements.

Bank Supervision and Resolution Planning

The PFSA’s bank supervision aims to maintain financial stability, protect depositors, and ensure compliance with regulations. Resolution planning involves developing strategies to manage financial distress and maintain critical functions in case of bank failure. This may include resolution tools such as the sale of the business, establishing a bridge bank, or asset separation.

The Bank Guarantee Fund (BGF) serves as the resolution authority in Poland. When a bank fails, the BGF initiates the resolution process by identifying the best course of action to ensure the bank’s stability and protect stakeholders’ interests. This may include recapitalization, restructuring, or dissolution of the bank.

Poland offers various options to address failed banks, including reorganization, recapitalization, restructuring, and dissolution. Reorganization involves the bank’s internal restructuring to improve its financial stability and profitability. Recapitalization involves raising new capital to stabilize the bank’s financial position. Restructuring may include mergers, acquisitions, or divestitures to improve the bank’s efficiency and competitiveness. Dissolution involves the bank’s orderly closure and the liquidation of its assets to repay its liabilities.

Polish authorities have access to resolution tools such as the sale of the business, which involves the transfer of the failing bank’s assets and liabilities to a healthy acquirer. A bridge bank may be established to temporarily take over the failing bank’s operations, ensuring the continuation of critical functions until a permanent solution is found. Asset separation involves transferring the bank’s non-performing assets to a separate entity, allowing the bank to focus on its core business.

Protection of Deposits and Creditor Interests in Poland

In Poland, the Bank Guarantee Fund (BGF) protects account deposits through the Deposit Guarantee Scheme, which guarantees deposits up to EUR 100,000 per depositor per bank. Other creditor interests are protected by the priority of claims established by law, which determines the order of repayment in case of bank liquidation.

Polish authorities ensure the orderly exit of non-viable firms through a combination of supervisory actions, resolution planning, and the application of resolution tools. These measures aim to minimize the impact of bank failures on the financial system and protect stakeholders’ interests.

Bank Liquidation Rules in Poland

In the event that a bank is deemed non-viable and liquidation is necessary, the liquidation process is initiated by the PFSA, and the BGF may be appointed as the liquidator. The liquidator is responsible for identifying the bank’s assets, determining liabilities, and selling assets to repay creditors according to the priority of claims established by law.

To safeguard their position during statutory administration, deposit insurance, and bank liquidation, account holders should ensure that their deposits are covered by the BGF’s Deposit Guarantee Scheme. In addition, account holders should monitor their bank’s financial health and be aware of any potential issues that may impact their investments.

Bank failures in Poland are governed by a robust legal framework designed to maintain financial stability and protect stakeholders’ interests. The PFSA and the BGF play crucial roles in supervising banks, determining bank failures, and implementing resolution processes. International bank creditors can take solace in the fact that Poland has a well-structured system in place to address bank failures, protect deposits and creditor interests, and ensure the orderly exit of non-viable firms. By staying informed and vigilant, account holders can take the necessary steps to safeguard their investments in the Polish banking sector.