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Banking SupervisionBanking Supervision
Prof. UG dr hab. Anna JurkowskaProf. UG dr hab. Anna Jurkowska--ZeidlerZeidler
Banking supervisory functionsBanking supervisory functions
The objective of the bankingThe objective of the banking
supervision is to ensure:supervision is to ensure:
the safety of funds held in bankthe safety of funds held in bank
accounts,accounts,
compliance of the banks with thecompliance of the banks with the
provisions of the Banking Law, theirprovisions of the Banking Law, their
statutes, and the decision ofstatutes, and the decision of
granting authorisation to establishgranting authorisation to establish
those banks.those banks.
Supervision of Credit InstitutionsSupervision of Credit Institutions
Supervision of credit institutions inSupervision of credit institutions in
the light of the EU law is based onthe light of the EU law is based on
the following rules:the following rules:
Supervision by the home MemberSupervision by the home Member
State, with exceptional supervisionState, with exceptional supervision
by the host Stateby the host State
National deposit guaranteesNational deposit guarantees
The exchange of informationThe exchange of information
between supervising authorities ofbetween supervising authorities of
host and home Member Statehost and home Member State
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The homeThe home--host relationship in thehost relationship in the
exercise of banking supervisionexercise of banking supervision
The homeThe home--hosthost relationshiprelationship, is the core, is the core
conceptconcept ofof supervision of thesupervision of the EEUU
financialfinancial marketmarket ..
The homeThe home--host relationship is about howhost relationship is about how
we should divide tasks, powers andwe should divide tasks, powers and
responsibility in the exercise of bankingresponsibility in the exercise of banking
supervision between differentsupervision between different EUEU
Member StatesMember States when it comes towhen it comes to
supervising, monitoring and, in the worstsupervising, monitoring and, in the worst
case,case, windingwinding –– up of creditup of credit institutionsinstitutions..
The homeThe home--host relationship in thehost relationship in the
exercise of banking supervisionexercise of banking supervision (cont.)(cont.)
Legally, the homeLegally, the home--host relationshiphost relationship
only refers to the division ofonly refers to the division of
responsibility between supervisorsresponsibility between supervisors
from different countriesfrom different countries, which, which
currently is based on the principle ofcurrently is based on the principle of
homehome Member State supervisionMember State supervision
(home(home country controlcountry control))..
Passporting and supervisionPassporting and supervision
of branchesof branches
In accordance with the principle of singleIn accordance with the principle of single
authorisation, the decision to issue anauthorisation, the decision to issue an
authorisation valid for the entire EU shallauthorisation valid for the entire EU shall
be the sole responsibility of thebe the sole responsibility of the
competent authorities of the homecompetent authorities of the home
Member State.Member State.
A credit institution may then provide theA credit institution may then provide the
services or perform the activities, forservices or perform the activities, for
which it has been authorised, throughoutwhich it has been authorised, throughout
the Single Market, either through thethe Single Market, either through the
establishment of a branch or the freeestablishment of a branch or the free
provision of servicesprovision of services
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Rule of home SupervisionRule of home Supervision
According to the rule of nationalAccording to the rule of national
supervision, a credit institutionsupervision, a credit institution
having its registred office in one EUhaving its registred office in one EU
Member State, conducting itsMember State, conducting its
activity crossborder at the territoryactivity crossborder at the territory
of other Member State or having itsof other Member State or having its
branches abroadbranches abroad ––
is subject to supervision of homeis subject to supervision of home
Member States authoritiesMember States authorities
Rule of home Supervision (cont.)Rule of home Supervision (cont.)
RResponsibility for supervising theesponsibility for supervising the
financial soundness of a creditfinancial soundness of a credit
institution, and in particular its solvency,institution, and in particular its solvency,
is laid on tis laid on the competent authoritieshe competent authorities inin itsits
home country.home country.
Rule of host SupervisionRule of host Supervision
The rule of host Member StateThe rule of host Member State
supervision is applicable tosupervision is applicable to
(foreign) subsidiaries of credit(foreign) subsidiaries of credit
institution and to creditinstitution and to credit
institutions with their registeredinstitutions with their registered
office outside the territory of theoffice outside the territory of the
EU.EU.
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Rule of host Supervision (cont.)Rule of host Supervision (cont.)
The hostThe host Member State'sMember State's competentcompetent
authoritiesauthorities are rare responsibesponsiblele for thefor the
supervision ofsupervision of of the liquidity of theof the liquidity of the
branches of foreign credit institutionsbranches of foreign credit institutions
located in its territory and domesticlocated in its territory and domestic
monetary policy.monetary policy.
Cooperation in banking supervisionCooperation in banking supervision
The competent home and hostThe competent home and host
authorities are obligated toauthorities are obligated to
exchange any information conceringexchange any information concering
management and assets of creditmanagement and assets of credit
institutions, that may facilitateinstitutions, that may facilitate
monitoring of such elements andmonitoring of such elements and
exercising supervision over them, inexercising supervision over them, in
particular as regards liquidity andparticular as regards liquidity and
solvency of credit institutions andsolvency of credit institutions and
deposit guarantees.deposit guarantees.
Colleges of supervisorsColleges of supervisors
Enhanced cooperation between supervisory authoritiesEnhanced cooperation between supervisory authorities
both at EU and global level is key to strengthening theboth at EU and global level is key to strengthening the
supervision of crosssupervision of cross--border banking groups.border banking groups.
Colleges of supervisors are the vehicles for theColleges of supervisors are the vehicles for the
coordination of supervisory activities.coordination of supervisory activities.
Under EU law, colleges of supervisors have to beUnder EU law, colleges of supervisors have to be
established for EU banks with subsidiaries orestablished for EU banks with subsidiaries or
significant branches in other EU countries (They maysignificant branches in other EU countries (They may
include supervisors in noninclude supervisors in non--EEA countries, whereEEA countries, where
relevant).relevant).
The colleges allow supervisory authorities to joinThe colleges allow supervisory authorities to join
forces, share knowledge and use skills and resourcesforces, share knowledge and use skills and resources
more effectively and efficiently, regardless of theirmore effectively and efficiently, regardless of their
individual jurisdiction.individual jurisdiction.
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Directive 2013/36/EUDirective 2013/36/EU
(25) Responsibility for supervising the(25) Responsibility for supervising the
financial soundness of a creditfinancial soundness of a credit
institution and in particular its solvencyinstitution and in particular its solvency
on a consolidated basis should lie withon a consolidated basis should lie with
its home Member State. Theits home Member State. The
supervision of Union banking groupssupervision of Union banking groups
should be the subject of closeshould be the subject of close
cooperation between the competentcooperation between the competent
authorities of the home and hostauthorities of the home and host
Member States.Member States.
Financial soundnessFinancial soundness
(finance) financial stability(finance) financial stability
Sound: financially strong, secure, orSound: financially strong, secure, or
reliable, financially safe or stablereliable, financially safe or stable
The risk of financial failure arisingThe risk of financial failure arising
from lack offrom lack of liquidityliquidity or capitalor capital
Liquidity risk is defined as the riskLiquidity risk is defined as the risk
that the bank will be unable to meetthat the bank will be unable to meet
itsits financialfinancial obligations as they fallobligations as they fall
due. These obligations include thedue. These obligations include the
repayment of deposits on demandrepayment of deposits on demand
SolvencySolvency
Solvent condition; ability to pay all justSolvent condition; ability to pay all just
debts.debts.
Solvency: ability to pay all debtsSolvency: ability to pay all debts
The ability of a bank to meet its longThe ability of a bank to meet its long--termterm
financialfinancial obligations.obligations. SolvencySolvency is essentialis essential
to staying in business, but a company alsoto staying in business, but a company also
needs liquidity to operate.needs liquidity to operate.
If a company is unable to meet itsIf a company is unable to meet its
obligation, it is said to beobligation, it is said to be insolventinsolvent andand
must undergomust undergo bankruptcybankruptcy in order toin order to
eithereither liquidateliquidate oror restructurerestructure..
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Directive 2013/36/EUDirective 2013/36/EU
(26) The competent authorities of host(26) The competent authorities of host
Member States should have the powerMember States should have the power
to carry out, on a caseto carry out, on a case--byby--case basis,case basis,
onon--thethe--spot checks and inspections ofspot checks and inspections of
the activities of branches of institutionsthe activities of branches of institutions
on their territory and requireon their territory and require
information from a branch about itsinformation from a branch about its
activities and for statistical,activities and for statistical,
informational, or supervisory purposes,informational, or supervisory purposes,
where the host Member States considerwhere the host Member States consider
it relevant for reasons of stability of theit relevant for reasons of stability of the
financial system.financial system.
Directive 2013/36/EUDirective 2013/36/EU
(27)(27) TheThe competentcompetent authoritiesauthorities ofof thethe
hosthost MemberMember StatesStates shouldshould obtainobtain
informationinformation aboutabout activitiesactivities carriedcarried outout
inin theirtheir territoriesterritories.. SupervisorySupervisory
measuresmeasures shouldshould bebe takentaken byby thethe
competentcompetent authoritiesauthorities ofof thethe homehome
MemberMember StateState unlessunless thethe competentcompetent
authoritiesauthorities ofof thethe hosthost MemberMember StatesStates
havehave toto taketake precautionaryprecautionary emergencyemergency
measuresmeasures..
New architecture of the bankingNew architecture of the banking
supervision in EUsupervision in EU
Recent changes and developments in institutionalRecent changes and developments in institutional
structure of financial markets in a number of EUstructure of financial markets in a number of EU
Member States highlighted some commonMember States highlighted some common
features of the reforms concerning nationalfeatures of the reforms concerning national
supervisory structures:supervisory structures:
a trend towards consolidation of supervisorya trend towards consolidation of supervisory
authorities;authorities;
a close involvement of central banks in prudentiala close involvement of central banks in prudential
supervision even where they are not entrustedsupervision even where they are not entrusted
with direct supervisory responsibilities;with direct supervisory responsibilities;
an increased tendency to formalise cooperationan increased tendency to formalise cooperation
among supervisory authorities and between themamong supervisory authorities and between them
and other authorities, in this way contributing toand other authorities, in this way contributing to
financial stabilityfinancial stability