Banks face punishment in Poland over EU-wide recovery plans

2 May 2017 11:30am

21 April 2017. By Hugo Coelho.

Multinational banks could face "drastic" action in Poland if they disregard local capital and liquidity orders in favor of emergency preparations pushed by EU regulators, a senior Polish financial supervisor said.

The European Banking Authority's push for banks to draw up a single recovery plan covering all EU operations is at odds with post-crisis rules to end bailouts, said Andrzej Reich, who heads banking regulation at the Polish financial supervisor.

"The EBA recommendations say that after a transitional period of two years national supervisors should not request an individual recovery plan. I find this to be in contradiction with the EU Bank Recovery and Resolution Directive," he said at a hearing in London yesterday.

The criticism exposes long-running tensions between member states that are home to banking groups and those that host subsidiaries on dealing with failing banks.

Polish supervisors could retaliate against banks that scrap or downsize recovery plans for local banking units by declaring that senior managers fail a "fit and proper" test to run a bank, Reich said.

"This is something that a supervisor would be very reluctant to do," he said. "I urge the EBA to consider amendments to the recommendations which could give us the possibility of not using this drastic measure."

After the financial crisis, EU lawmakers imposed a requirement on banks to plan for crises scenarios and set out measures to recover their business. But plans drawn for local units have often been inconsistent with recovery plans devised at parent company level, the EBA has found.

The EBA is proposing that by 2019, banks design a single plan covering all EU operations, which would include detailed measures for individual entities that are either relevant to the group or the local economy and the local financial system.

But Polish authorities are lobbying against the proposals, arguing that national authorities must retain powers to request full-blown recovery plans for any bank operating in the country.

During yesterday's hearing, industry representatives also raised questions on how banks should go about identifying parts of the business that need to be covered in detail within the single recovery plan.

Mark Russell, a senior policy director at the British Bankers' Association, said the criteria to identify relevant banks are "subjective," and raised questions about the influence of national supervisors in the process.

Industry representatives also asked for more clarity about the level of detail needed in the plans for different entities within a group.

Antoine Broyé, vice president of risk analytics at Deutsche Bank, suggested a distinction should be made between operational entities and service entities.

The EBA will accept comments on the plans until June 2, and its recommendations will apply from July 1.

Fintech Regulation in 2018