This volume is a product of the staff of the International Bank for Reconstruction and

Development/The World Bank. The World Bank does not guarantee the accuracy of the data

included in this work. The findings, interpretations, and conclusions expressed in this paper

do not necessarily reflect the views of the Executive Directors of the World Bank or the

governments they represent.

The material in this publication is copyrighted.

FINANCIAL SECTOR ASSESSMENT PROGRAM

POLAND

BCBS-IADI CORE PRINCIPLES FOR EFFECTIVE DEPOSIT

INSURANCE SYSTEMS

DETAILED ASSESSMENT OF

OBSERVANCE

MAY 2013

THE WORLD BANK

FINANCIAL AND PRIVATE SECTOR DEVELOPMENT VICE PRESIDENCY

EUROPE AND CENTRAL ASIA REGIONAL VICE PRESIDENCY

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1

Contents Page

Glossary ........................................................................................................................................2

I. Summary, Key Findings and Recommendations ......................................................................3

A. Introduction ..................................................................................................................3

B. Preconditions for an Effective Deposit Insurance System ...........................................5 C. Key Findings and Recommendations ...........................................................................8

II. Detailed Compliance Assessment ..........................................................................................14

Text Tables

1. Summary Compliance with the BCBS-IADI Core Principles—Detailed Assessments .........11

2. Recommended Action Plan to Improve Compliance with the BCBS-IADI Core Principles 13

3. Detailed Assessment of Compliance with the BCBS-IADI Core Principles ..........................15

2

GLOSSARY

BCBS Basel Committee on Banking Supervision

BFG

CAD

Bankowy Fundusz Gwarancyjny (Bank Guarantee Fund)

Commission for Audit Supervision

CAR Capital adequacy ratio

CBS Commission for Banking Supervision

CFS Commission for Financial Supervision

CRD Capital Requirements Directive

CRR

DIS

Capital Requirements Regulation

Deposit Insurance System

EU

EFDI

European Union

European Forum of Deposit Insurers

EUR Euro

EWS Early Warning System

FPGA

FSAP

Fund for the Protection of Guaranteed Assets

Financial Sector Assessment Program

FSC Financial Stability Committee

FSB Financial Stability Board

GDP Gross domestic product

IADI International Association of Deposit Insurers

IAIS International Association of Insurance Supervisors

IFRS International Financial Reporting Standards

IT Information Technology

KNF Polish Financial Supervision Commission

MoF Ministry of Finance

MOU Memorandum of Understanding

NASCU National Association of Cooperative Savings and Credit Unions

NBP

NCSA

National Bank of Poland

National Chamber of Statutory Auditors

NPL Non-Performing Loan

OECD Organization for Economic Cooperation and Development

PBA Polish Bankers Association

PLN Polish zloty

ROSC Report on Observance of Standards and Codes

SCV Single Customer View

SREP Supervisory Review and Evaluation Process

3

I. SUMMARY, KEY FINDINGS AND RECOMMENDATIONS

A. Introduction

1. During February 19-March 4, 2013 an assessment under the IMF/World Bank

Financial Sector Assessment Program (FSAP) was conducted for the Republic of

Poland. As part of the FSAP, the deposit insurance system was assessed against the BCBS-

IADI Core Principles for Effective Deposit Insurance Systems.

2. The assessment was conducted by a team of experts from the World Bank and

IMF.1 The team held meetings with officials from the Bank Guarantee Fund -- Bankowy

Fundusz Gwarancyjny (BFG), the Ministry of Finance (MoF), the National Bank of Poland

(NBP), the Polish Financial Supervisory Commission (KNF), the Polish Bankers Association

(PBA) and a number of commercial banks. The assessment team would like to thank the

Polish authorities and the staff of the BFG in particular for their help and cooperation during

the mission.

3. The team found the BFG is Compliant or Largely Compliant with 16 out of 17

applicable Core Principles and Materially Non-Compliant with one Core Principle.2

This report is made up of a review of the background and structure of the BFG, a review of

preconditions for effective deposit insurance systems, a summary of key finding and

recommendations and a section providing the detailed assessment of the Core Principles.

Background and Structure of the BFG

4. The BFG was established in 1995 following a banking crisis and immediately

began addressing a wave of bank failures. The introduction of the market economy in

Poland in 1989 was followed by the rapid entry and growth of banks. From 1989 to 1992,

seventy new banks were established. A banking crisis followed in 1993 and at the end of

1994 Parliament passed the Act on the Bank Guarantee Fund (“the BFG Act”). The BFG

was established in 1995 and began dealing immediately with a large number of bank failures.

Although the number of failures declined during the 1996-99 period, the largest failure

occurred in 2000 involving 150,000 depositors. The last failure occurred in 2001.

5. The amount of guaranteed funds reimbursed to depositors and financial

assistance provided by the BFG to troubled banks has been extensive. Since 1995, the

BFG has conducted 94 depositor reimbursements involving PLN 814.4 million and 318,823

depositors. In addition to reimbursements, the BFG’s mandate allows it to grant financial

assistance in the form of loans, endorsements, guarantees and the acquisition of liabilities.

1 The assessment was conducted by David Walker (consultant for the World Bank from the Canada Deposit

Insurance Corporation). The FSAP was led by Brett Coleman (World Bank) and Luc Everaert (IMF).

2 Core Principle 16 Effective resolution processes was materially non-compliant. Core Principle 10

(Transitioning from a blanket guarantee) was not applicable. Core Principles 2 (Mitigating moral hazard), 5

(Governance), 13 (Legal protection), and 15 (Early detection and timely intervention and resolution) were

largely compliant. All remaining Core Principles were fully compliant.

4

Assistance is provided to support rehabilitation or to facilitate mergers and acquisitions by

healthier banks provided the costs of doing so are no greater than through a reimbursement of

insured (guaranteed) depositors. There have been 101 BFG interventions involving financial

assistance since 1995 involving PLN 3,790 million which were either rehabilitated or merged

with other institutions. The last bank failure was in 2001 and financial assistance has been

used on three occasions during the last five years.

6. The BFG was established as a government legislated and administered agency.

The BFG is governed by a Management Board of up to five persons and overseen by an

eight-member Fund Council. Members of the Council include two representatives each

selected by the Minister of Finance and the NBP, one representative of the KNF, and two

representatives of the PBA. The Chairperson of the BFG Council is appointed (and recalled)

by the Minister responsible for financial institutions (having consulted the President of the

NBP and the Chairperson of the KNF). The BFG Management Board is responsible for

managing the fund and day-to-day operations. The Board is composed of a President, Vice-

President and from one to three additional members. Information sharing and coordination

arrangements are extensive and include legislative provisions for information sharing and

coordination in the BFG, Banking and KNF Acts. In addition, a Financial Stability

Committee (FSC) is used as a coordination mechanism for primarily financial sector policy

issues (with members from the MoF, NBP and KNF). The President of the BFG

Management Board attends FSC meetings and will soon become a permanent member.

7. Membership is compulsory for all domestic banks (and foreign banks which are

not already covered by their home country deposit insurance system) and coverage is

limited to the PLN equivalent of EUR 100,000. As of 30 September 2012, the membership

included 619 domestic banks and cooperative banks. There are no foreign bank branch BFG

members presently as all EU foreign bank branches operating in Poland are protected up to

EUR 100,000 by their home-country deposit insurance system. Under draft legislation being

reviewed cooperative savings and credit unions will be added to the membership of the BFG.

In addition to the EUR 100,000 limit per depositor per bank on the level of coverage, the

scope of coverage is restricted (e.g. depositors who are deemed professional financial market

participants, bank management as well as its shareholders/stakeholders are not covered).

8. The BFG has seen its mandate expand over the years from a “paybox” to a

“paybox-plus” system.3 Its present responsibilities include: collecting deposit insurance

premiums; inspecting depositor information; analyzing data on its member banks; conducting

off-site risk assessment; reimbursing insured depositors; and providing financial assistance to

troubled banks using a least cost test criteria. Legislation is under development to expand

Poland’s financial institution resolution regime and as a consequence the BFG would be

provided with wider resolution powers. The powers include: the ability to act as a receiver,

transfer assets and undertake purchase and assumptions, establish work-out companies,

3 According to the definitions of deposit insurer mandates in the FSB Thematic Review on Deposit Insurance

Systems (2012) the BFG presently fits into the category of a “pay-box plus” and with its new powers could be

considered in the future as either a “loss-minimizer” or a partial “risk-minimizer”.

5

establish bridge institutions, develop resolution plans and resolvability assessments, and

include the President of the BFG Management Board on the FSC.

9. The BFG has comprehensive funding resources. There are five funds in existence

– one ex-post (individual bank funds for the protection of guaranteed assets)4 and four ex-

ante funds (an assistance fund for restructuring domestic and cooperative banks, a statutory

fund, a reserve fund, and a special fund raised from recoveries from the estates of failed

banks). Emergency back-up funding is available from the NBP and MoF. A differential

“risk-adjusted” premium system is also in use. BFG funds are sufficient to cover the payout

of guaranteed deposits up to the 12th largest bank in Poland (reflecting an ex-ante coverage

ratio – the proportion of guaranteed deposits covered – of 1.87 percent). The target fund

ratio is 2.72 percent of covered deposits.

10. Depositor reimbursement systems are highly developed and capable of payouts

within 20-working days. Payout processes are highly developed with banks required to

report to the BFG depositor data on an ongoing basis, and data quality is monitored by the

BFG. A Single Customer View (SCV) system is in use. The payout process is capable of

reimbursing depositors within a maximum of 20 working days, and tests and simulations

indicate that in many cases payouts could be accomplished in a much shorter time period

(within 7 days). Depositors are informed on an ongoing basis about the existence of the BFG

and terms and conditions of coverage. The BFG is at the forefront of deposit insurers in

using a wide range of communication vehicles (e.g. signage in branches, brochures, web

sites, print, video and social media).

B. Preconditions for an Effective Deposit Insurance System5

Macroeconomic Environment and Banking System

11. After robust growth last year, the Polish economy is presently feeling the effects

of headwinds from Europe. Growth is moderating amid weaker export demand and

confidence effects on private investment and consumption, which have combined with lower

public investment. Economic activity is projected to slow further. Rising unemployment and

tight credit availability are expected to weigh further on household spending. Overall, GDP

growth is projected to slow in 2013. Risks around this outlook are on the downside, as a

deeper or more protracted slowdown in Europe or a re-intensification of the crisis would

affect Poland through substantial trade and financial channels.

12. Fiscal consolidation in 2012 and the draft 2013 budget balances indicate fiscal

adjustment and support for the economy. Despite weaker-than-expected VAT revenues,

the general government deficit is projected to drop by 1½ percentage points to about 3½

4 The ex-post funds are used following a bank failure. Each bank sets aside a segregated fund made up of high

quality securities which are used first in a depositor payout. If these funds prove insufficient to compensate all

the insured depositors then the ex-ante funds of the BFG are used.

5 This analysis is based on the 2012 IMF Article IV Poland Consultation and the Draft FSAP Poland Aide-

Memoire from March 2013.

6

percent of GDP in 2012. The 2013 budget continues the structural consolidation (with

measures of some ½ percent of GDP) while allowing automatic stabilizers to mitigate the

slowdown. These consolidation efforts have supported market confidence and contributed to

very favorable financing conditions.

13. Poland’s financial system has been expanding rapidly and remains dominated

by banks. The total assets of the financial system grew from 86 percent of GDP in 2005 to

124 percent of GDP in 2012. The financial system is dominated by banks, which account for

about 70 percent of assets. At end-2012, there were 70 commercial banks in Poland, of which

61 were subsidiaries or branches of foreign credit institutions, 573 cooperative banks,6 and 55

credit unions.

14. The banking system is dominated by a handful of foreign-owned banks. They

control about 65 percent of the sector’s assets – a sizeable proportion, but lower than in the

Czech Republic, Hungary, and Slovakia. Foreign banks have retrenched somewhat, and

deleveraging by foreign owners has led to some consolidation in the sector. The state owns

controlling shares in four banks, which together account for about 22 percent of banking

sector assets. The banking system is not highly concentrated; the top five banks account for

about 44 percent of system assets.7

15. The Polish banking system is well capitalized and liquid. In aggregate, capital

adequacy reached 14.7 percent, 90 percent of which is tier-1 capital. Banks’ profits in 2011

and 2012 were historically high, and regulations restricting dividend payouts aided capital

building. Nevertheless, an overhang of FX-denominated mortgages continues to pose risks to

asset quality and funding. Deterioration in the construction sector has also affected loan

quality.

16. Regulatory and supervisory efforts have helped improve the resilience of the

banking system, but the economic slowdown will pose some challenges for banks. Bank

capital buffers have remained comfortable and overall liquidity is ample. However, as the

economy has slowed, NPLs have increased and credit growth has eased. Authorities have

taken some positive steps to deal with NPLs, such as by encouraging voluntary out-of-court

restructuring by banks. Work in establishing a Systemic Risk Board to implement a macro-

prudential framework and the upgrading of the bank resolution toolkit are also underway.

Sound Governance of Agencies Comprising the Financial Safety Net

17. The NBP, KNF and BFG are provided with a range of powers to support

financial system stability. The central bank, the NBP, performs financial stability analysis

and data collection. The KNF is the integrated financial supervisor for the banking, credit

6 Of the 70 commercial banks, 2 were affiliating banks for the cooperative bank sector. Cooperative banks do

not have accounts with the NBP and place their available funds with their affiliating banks.

7 This ratio exceeds 60 percent in the Czech Republic and Slovenia, and 70 percent in Slovakia.

7

union, insurance, pensions, and securities sectors. The BFG manages the deposit guarantee

system in Poland and under new legislation being developed would see its role in resolution

expanded and become more integrated into the crisis preparedness and management

framework. The safety-net participants exhibit operational independence and accountability

and have good transparency and disclosure frameworks. The agencies coordinate closely

with the MoF.

18. Poland’s regulatory, supervisory, and resolution frameworks are influenced by

developments at the European Union (EU) level. As a member of the EU, Poland is

obliged to comply with EU directives when they come into force. Poland is expected to be in

line with the changed EU Directives on deposit insurance systems, and on the new EU

Directive on bank recovery and resolution.

Strong Prudential Regulation and Supervision

19. Oversight of the financial sector is mainly the task of the KNF. It is an integrated

supervisor with oversight over the banking, insurance and securities sectors and is

responsible for prudential supervision as well as for competition, conduct of business,

consumer protection and development issues.

20. The ongoing modernization of Poland’s financial system and challenging

macroeconomic environment pose challenges to the supervisory and regulatory system. NPLs have risen sharply due to the 2008/09 international financial crisis and lenient

underwriting standards before 2010. Banks are cleaning up balance sheets but tax

disincentives, income accrual practices and impediments in the legal framework have created

roadblocks.

21. The KNF has intensified its supervisory approach and is in the process of

revising underwriting standards.8 Nevertheless, there are a number of areas that need to be

addressed such as deficiencies in the powers of the KNF to issue binding resolutions and the

need to enhance the intensity of on-site supervision. Credit and lending policies need to be

tightened, and the supervisory authority needs to ensure that bank board oversight and risk

management are effective. Monitoring of loan restructuring should be strengthened, and

accounting practices for impaired loans improved. The KNF would also benefit from

additional resources to deal with the above areas as well as its planned expanded role in

supervising credit unions.

Well-Developed Legal Framework

22. Banking laws and regulations in Poland are updated as necessary to ensure that

they remain effective and relevant to a changing industry; however, the legal

framework needs improvement in areas such as corporate governance, resolution and

insolvency. The Banking Act is silent regarding fit-and-proper criteria for members of the

banks’ supervisory boards. The resolution framework is underdeveloped, and the number of

8 For further details see the FSAP aide-memoire Section II: Financial sector oversight.

8

KNF’s enforcement actions is relatively low. Finally, major acquisitions by domestic banks

require only 30-day ex ante notification to the KNF, and the agency has inadequate power to

influence the banking group structures. In sum, the legal framework needs to be improved in

a number of key dimensions to ensure sound and consistent requirements in the above-

mentioned areas.

23. Participants in the financial safety net are entitled to protect depositors through

a number of options including depositor reimbursements and financial assistance; but

there is room for improvement in the framework for bank resolution. The current

framework does not explicitly include flexible resolution tools and relies mainly on

corrective action, reorganization, and liquidation phases, the latter deploying the corporate

bankruptcy code, which can result in losses of asset value, and requiring up-front payment to

insured depositors. New draft legislation (a revised draft BFG Act) includes more flexible

tools for, inter alia, starting resolution before a bank reaches full insolvency, allowing partial

transfers of a bank’s balance sheet to other banks, applying administrative vs. judicial

powers, and deploying new debt write-down tools. These are broadly in line with the new EU

Directives and international best practices espoused by the Financial Stability Board (FSB)

and others.

24. Information exchange between the financial system safety net participants is

extensive and legally protected for all measures necessary in order to protect depositors

and enable safety-net participants to intervene in bank failures. All communications

between safety-net participants are subject to confidentiality provisions.

Sound Accounting and Disclosure Regime

25. Accounting and disclosure regimes support the ability of the supervisor and

deposit insurer to adequately evaluate the health of individual banks and the banking

system as a whole. Audited financial statements of listed companies, banks and similar

financial institutions must be published. The accounting and audit profession is self-regulated

by the National Chamber of Statutory Auditors and the Commission for Audit Supervision,

and there are statutory requirements for auditors to have professional liability insurance.

With respect to the BFG, a comprehensive deposit insurance information system has been

developed allowing access to detailed information on an ongoing basis. There is a sound

process in place to examine and verify the quality of data by the BFG.

C. Key Findings and Recommendations

26. The team found the BFG is Compliant or Largely Compliant with 16 out of 17

applicable Core Principles and Materially Non-Compliant with one Core Principle.9 In

9 Core Principle 16 (Effective resolution processes) was materially non-compliant. Core Principle 10

(Transitioning from a blanket guarantee) was not applicable. Core Principles 2 (Mitigating moral hazard), 5

(Governance), 13 (Legal protection), and 15 (Early detection and timely intervention and resolution) were

largely compliant. All remaining Core Principles were fully compliant.

9

particular, the team would like to note favorably the many accomplishments of the BFG,

including:

i) The successful reimbursement of depositors in 94 bank failures and the provision of

financial assistance in 101 bank interventions;

ii) Expansion of the deposit insurer mandate from a “pay-box” to a “paybox-plus” and

recognition of the BFG as a critical component of Poland’s financial system;

iii) Development of a sound governance framework and information sharing and

coordination arrangements with other financial safety-net participants;

iv) Creation of a highly developed early warning and risk assessment system to

complement its comprehensive and timely depositor data collection and analysis

systems;

v) Wide ranging public awareness activities and innovative tools (e.g. social media) to

promote financial literacy and awareness of deposit insurance; and

vi) A well designed depositor reimbursement system capable of prompt payouts.

27. However, the team found a number of areas where some deficiencies exist in the

deposit insurance system and financial safety-net arrangements and accordingly is

proposing a corrective action plan to address these areas (see Tables 1 and 2). The major

findings are:

i) Overall governance arrangements for the BFG could be enhanced to better

reflect best international practices. The BFG is governed by a Management Board

of up to five persons and overseen by an eight-member Fund Council. Members of

the Council include two representatives each from the MoF and NBP, one

representative of the KNF, and two representatives of the PBA. Due to the potential

for conflicts of interest with members, it is recommended that the representation of

the PBA be removed and consideration be given to involving the PBA through

arrangements such as an external advisory committee.

ii) The BFG has comprehensive and sufficient funding resources although the need

for so many individual funds should be reviewed. The BFG currently has five

funds in place. In a bank failure, the ex-post fund is used first followed by the BFG’s

ex ante funds, and if required, supplementary back-up funding is available from the

NBP and MoF. While this arrangement is functional and no major problems have

been encountered in the past, it is a complex arrangement. And, even under the draft

legislative proposals on resolution, the number of funds proposed would remain high.

Thus, consideration should be given to rationalizing the number of funds.

10

iii) The BFG should also reassess its fund adequacy in light of EU-mandated

coverage increases, the addition of credit unions and the planned introduction of

expanded resolution powers. The EU-mandated coverage limit increased to EUR

100,000 in 2010; the inclusion of credit unions and the planned adoption of a more

comprehensive resolution regime will increase funding requirements. In 2007, the

BFG’s ex-ante funds were sufficient to cover the payout of guaranteed deposits up to

the 10th largest bank in Poland (reflecting an ex-ante coverage ratio – the proportion

of guaranteed deposits – of 2.72 percent). As of 30 September 2012, the increase in

the coverage limit lowered the coverage ratio to 1.87 percent leaving BFG ex ante

funds (sufficient to cover payouts only up to the 12th largest bank). The team

supports BFG plans to raise ex-ante fund adequacy by increasing the coverage ratio

back to 2007 levels; and, by 2020 to the EC-recommended ratio of 1.5 percent of

eligible deposits. Moreover, given proposals in draft legislation to extend BFG

membership to credit unions and to add significant new resolution powers to its

mandate (which could increase the size of the banks which could be resolved using

BFG resources), it would be advisable to review and re-assess fund adequacy in light

of these developments going forward.

iv) Although the BFG and those working on its behalf are provided with legal

protection, the codes of conduct applied to the BFG and its employees have gaps

which need to be addressed. The BFG, its Management Board and employees,

acting in good faith, are not liable for damages in their work. Specific limitations of

liability are provided in law for the BFG Management Board and for employees by

the general labor code rules. However, codes of conduct restricting employment in

member institutions are only applied to the BFG Council and Management Board.

Although internal rules require employees to disclose any outside employment, there

are no specific statutory prohibitions or restrictions regarding employment in member

institutions for BFG employees.

v) There are significant deficiencies in Poland’s current bank resolution regime,

and draft legislation has been developed to address them and expand the BFG’s

role in resolution. Additional powers planned for the BFG include: the ability to act

as a receiver, transfer assets and undertake purchase and assumption transactions,

establish bridge institutions, develop resolution plans and resolvability assessments,

and include the President of the BFG Management Board on the FSC. The BFG’s

membership will be expanded to incorporate cooperative savings and credit unions.

Consequently, the BFG will need to work with its safety-net partners to revise and

introduce new regulations, enhance its protocols, and build additional capacity for

resolution (e.g., human resources, IT and public awareness initiatives). Information

sharing and coordination arrangements with the KNF, NBP and MoF may also need

to be updated and enhanced.

11

Table 1. Summary Compliance with the BCBS-IADI Core Principles -

Detailed Assessments

Core Principle Grade Comments

1. Public policy objectives C The public policy objectives are formally specified in

legislation and integrated into the design of the BFG.

2. Mitigating moral hazard LC The BFG has been provided with design features to

mitigate moral hazard. However, the coverage level

is relatively high and the ability of the supervisory and

regulatory system to mitigate moral hazard could be

enhanced.

3. Mandate C The BFG’s mandate is clearly and formally specified

in legislation.

4. Powers C The BFG is provided with the powers necessary to

fulfill its mandate and these are formally specified.

5. Governance LC The governance framework is sound and effective.

However, the presence on the Council of members

from the PBA raises conflict of interest issues which

are difficult to fully mitigate with existing

arrangements.

6. Relationships with other safety-net

participants

C Effective formal information sharing and coordination

agreements have been developed. The BFG is

included in contingency planning exercises conducted

for safety-net participants. The President of the BFG

Management Board will soon become a formal

member of the FSC.

7. Cross-border issues C The BFG is in compliance with EU cross-border

provisions and has developed MOUs on information

sharing and coordination with a number of countries.

8. Compulsory membership C Membership in the BFG is compulsory for all

domestic banks and foreign bank branches which are

not members of a home country scheme. Draft

legislation under review will expand membership to

cooperative savings and credit unions.

9. Coverage C Coverage is defined in law, credible, limited and

meets the public policy objectives of the system.

10. Transitioning from a blanket

guarantee to a limited coverage DIS

NA

11. Funding C The BFG utilizes a hybrid ex-ante and ex-post model

which provides access to a wide range of funding

sources. Funding mechanisms are clearly defined,

sufficient, reviewed on a regular basis and include

access to a number of supplementary funding

mechanisms. However, there are a large number of

funds for varying uses which adds to complexity.

12. Public awareness C The BFG undertakes a wide variety of activities to

promote public awareness on an ongoing basis.

12

13. Legal protection LC Although overall legal protection arrangements appear

effective, the codes of conduct restricting employment

in member institutions are only applied to the BFG

Council and Management Board. There are no

specific statutory prohibitions or restrictions regarding

employment in member institutions for BFG

employees.

14. Dealing with parties at fault in a

bank failure

C Relevant authorities in Poland are provided with the

power to seek legal redress against those parties at

fault in a bank failure.

15. Early detection and timely

intervention and resolution

LC The BFG is well integrated into the early detection

and intervention framework for troubled banks and

plays an important role in providing early warning

risk assessments. But deficiencies exist in the

supervisory/regulatory system identified in the BCP

(e.g., in areas such as corrective actions and on-site

supervision) and resolution framework.

16. Effective resolution processes MNC The resolution regime has been enhanced over the

years and has in place a number of tools used to

facilitate resolution. However, the current framework

is fragmented and missing important elements such as

mechanisms to provide for asset transfers,

receivership powers, purchase and assumptions, and

bridge institutions. Draft legislation under review

would address these deficiencies.

17. Reimbursing depositors C The BFG is capable of giving depositors prompt

access to their insured funds. The ability to conduct

on-site examinations of bank liabilities, the

introduction of standardized data templates and a

single customer view data system will help reduce

payout speeds further.

18. Recoveries C The BFG shares in the proceeds of recoveries from

the estate of failed bank. The management of the

assets of the failed bank and the recovery process are

guided by commercial considerations

Aggregate: Compliant (C) – 12, Largely Compliant (LC) – 4, Materially Non-Compliant (MNC) – 1, Non-

Compliant (NC) – 0, Not Applicable (NA) – 1

13

Table 2. Recommended Action Plan to Improve Compliance with the BCBS-IADI Core

Principles

Reference Principle Recommended Action

2. Moral Hazard The coverage level is relatively high, and the ability of the supervisory

and regulatory system to mitigate moral hazard is reduced by

deficiencies in the supervisory/regulatory framework such as

deficiencies in the powers of the KNF to issue binding resolutions and

the need to enhance the intensity of on-site supervision. Credit and

lending policies need to be tightened, and the supervisory authority

needs to ensure that bank board oversight and risk management are

effective.

5. Governance Consideration should be given to removing PBA representatives from

the BFG Council and replacing their input with an external advisory

committee.

11. Funding The BFG is well funded, but given the planned changes such as

adding credit unions to its membership and to significantly expand its

resolution powers (which could increase the size of the banks which

could be resolved using BFG resources), it is advisable for the BFG to

reassess fund adequacy going forward. The number of BFG funds in

existence should be also reviewed and possibly streamlined.

13. Legal protection Specific statutory prohibitions or restrictions regarding employment

in member institutions should be extended to all employees.

15. Early detection and timely

intervention and resolution

Addressing the deficiencies noted with respect to recommended action

for CP2 and implementing the planned resolution regime would

enhance the framework significantly.

16. Effective resolution processes [in

the event of a banking failure]

Draft legislation under review would address major resolution

deficiencies. To implement the planned resolution regime the BFG will

need to work with its safety-net partners to revise and introduce new

regulations, enhance protocols, and build additional resolution capacity

(e.g. human resources, IT and public awareness initiatives) within the

BFG. Information sharing and coordination arrangements with the

KNF, NBP and MoF should also be reviewed and updated as

necessary.

14

II. DETAILED COMPLIANCE ASSESSMENT

28. The assessment of compliance of each principle is made based on the following four-

grade scale: compliant, largely compliant, materially noncompliant, and noncompliant.

A “not applicable” grading can be used under certain circumstances.

Compliant – A deposit insurance system will be considered compliant with a Core

Principle when the essential criteria applicable for this country are met without any

significant deficiencies.

Largely Compliant – A deposit insurance system will be considered largely

compliant with a Core Principle whenever only minor shortcomings are observed

which do not raise any concerns about the authority’s ability and clear intent to

achieve full compliance with the Principle within a prescribed period of time.

Materially Non-Compliant – A deposit insurance system will be considered

materially non-compliant with a Core Principle whenever there are severe

shortcomings, despite the existence of formal rules, regulations and procedures, and

there is evidence that the deposit insurance system has clearly not been effective, that

practical implementation is weak, or that the shortcomings are sufficient to raise

doubts about the authority’s ability to achieve compliance.

Non-Compliant – A deposit insurance system will be considered non-compliant with

a Core Principle whenever there has been no substantive implementation of the

Principle, several essential criteria are not complied with or execution is manifestly

ineffective.

29. In addition, a Core Principle will be considered not applicable when, in the view of

the assessor, the Principle does not apply given the structural, legal and institutional features

of a country.

15

Table 3. Detailed Assessment of Compliance with the BCBS-IADI Core Principles

Principle 1. Public policy objectives

The first step in adopting a deposit insurance system or reforming an existing

system is to specify appropriate public policy objectives that it is expected to

achieve. These objectives should be formally specified and well integrated into

the design of the deposit insurance system. The principal objectives for deposit

insurance systems are to contribute to the stability of the financial system and

protect depositors.

Overall

Assessment

Compliant

Comments The public policy objectives for the BFG are formally specified, publically

disclosed and well integrated into the design features of the deposit insurance

system.

EC 1. The public policy objectives of the deposit insurance system are clearly defined

and formally specified, for example, through legislation or documents

accompanying legislation.

Description The public policy objectives of the deposit insurance system are clearly defined

and formally specified in the BFG Act and explanatory notes. Pursuant to the

explanatory statement these objectives are:

i) reimbursement of guaranteed funds to depositors and protecting

depositors against bank insolvency (the basic goal),

ii) strengthening the financial stability of the banking sector by means of

providing financial assistance to banks, and

iii) preventing and minimizing the cost of reimbursement of guaranteed

funds.

Comments

EC 2. The public policy objectives of the deposit insurance system are publically

disclosed.

Description Public policy objectives are disclosed in Annual Reports and the website of the

BFG which are accessible by the public.

Comments

EC 3. There is a review of the extent to which a deposit insurance system is meeting its

public policy objectives on a regular basis (e.g., between two to five years or on

a more frequent basis as deemed necessary). This review takes into consideration

the views of stakeholders.

Description The BFG has a process in place to review the extent to which it meets its public

policy objectives on a regular basis (e.g., on average every 2-5 years). This

process is the responsibility of the BFG Management Board. The results are

16

compiled in the form of recommendations to the MoF and can be submitted as

draft amendments to the BFG Act. This review also solicits the views of such

key stakeholders as commercial banks. As an example, during the latest review

the results were reflected in the BFG’s Corporate Plan of the Bank Guarantee

Fund for 2013. Strategic Directions of Development, which was adopted by the

BFG Council (the Resolution No. 19/2012 of 17 December 2012 of the BFG

Council).

Comments The BFG reviews the extent to which it meets its public policy objectives on a

regular basis. The process could be enhanced further by widening consultation

with stakeholders to include more regular input from consumer groups.

Principle 2. Mitigating moral hazard

Moral hazard should be mitigated by ensuring that the deposit insurance

system contains appropriate design features and through other elements of the

financial system safety net (see Core Principles for Effective Deposit Insurance

Systems “Preconditions” paragraph 16).

Overall

Assessment

Largely Compliant

Comments The design of the deposit insurance system recognises the existence of moral

hazard and mitigates it as much as possible, in line with public policy objectives.

However, certain deficiencies with the supervisory and regulatory system

identified in the FSAP AM (financial sector oversight) need to be addressed in

order to mitigate moral hazard more effectively. This is of particular importance

given that the coverage limit is relatively high, covering 99.6 percent individual

depositor accounts and 59 percent of the total value of deposits in the banking

system.

EC 1. The design of the deposit insurance system recognises the existence of moral

hazard and mitigates it as much as possible in-line with public policy objectives.

Specific design features that mitigate the risk of moral hazard may include:

limited deposit insurance coverage and scope; where appropriate, deposit

insurance premiums that are assessed on a differential or risk-adjusted basis;

and, minimising the risk of loss through timely intervention and resolution by

the deposit insurer or other participants in the safety net with such powers.

Description The deposit insurance system recognises the existence of moral hazard and has a

number of features mitigating the effect of moral hazard arising from deposit

insurance, these include:

i) Limited coverage – the amount stipulated in the Directive 94/19/EC of

the European Parliament and of the Council of 30 May 1994 on deposit-

guarantee schemes, i.e., up to the amount constituting the PLN equivalent

of EUR 100,000 per depositor, regardless of the balance and number of

accounts in which the depositor keeps funds in a given bank or the

number of claims to which said depositor has legal rights with respect to

this bank (Article 23 (1) and 23 (4) of the BFG Act of 1994). The scope

17

of deposit insurance is also limited (Article 2 (1) of the BFG Act of

1994) including the types of bank customers whose deposits are not

covered (e.g., professional financial market participants, bank

management as well as its shareholders/stakeholders, among others),

ii) the basis for calculating the annual premium contributions takes account

of risk (e.g., the sum of capital requirements for individual types or risks

and capital requirements for exceeding the limits and violation of other

standards specified in the Banking Act – Article 13 (1a) of the BFG Act

of 1994),

iii) banks’ obligations to inform clients who use or are interested in using

their services about a possible lack of guarantee protection (Article 38b

of the BFG Act of 1994),

iv) the BFG possesses inspection powers with respect to banks in terms of

data correctness, as well as with respect to the management system of a

bank to which financial assistance was granted by BFG,

v) criminal liability in case of non-performance or improper performance by

a bank of obligations relating to implementing and maintaining a

properly functioning calculation system (Article 38i (2) - (4) of the BFG

Act of 1994),

vi) using existing own funds of the bank for loss coverage of the bank

applying for the BFG’s financial assistance (Article 20 (4) of the BFG

Act of 1994), and

vii) the inspection powers of the BFG with respect to the proper use of

financial assistance (Article 20a (2) of the BFG Act of 1994).

Besides the design of the BFG itself, there are other factors mitigating moral

hazard through minimising the risk of loss, including but not limited to:

i) banking supervision – banks’ obligations as well as requirements for

them, and the powers of domestic banking supervision (the KNF) are

specified in the Banking Act of 29 August 1997 and the Act on Financial

Market Supervision of 21 July 2006. The purpose of the banking

supervision is, inter alia, to ensure the safety of funds held on bank

accounts (Article 133 (1) of the Banking Act),

ii) administrative powers of the KNF (i.e., detection, early intervention and

prompt corrective actions) towards banks in the event of a bank

sustaining a net loss, being threatened with such a loss or finding itself in

danger of insolvency, lack of a reorganization proceedings programme or

its inadequacy, ineffective implementation of such programme,

insufficient assets or lack of settlement of liabilities in respect of

guaranteed funds (Chapter 12, part A and C of the Banking Act),

iii) The BFG supports bank supervision by collecting and analyzing

information through its Early Warning System (EWS) which aims to

identify the significant risks in the banking sector or in a single bank.

Indications obtained from the EWS are presented at the Financial

18

Stability Committee (FSC) and shared with the KNF. The BFG

participates at the meetings of the Committee at the invitation of the

Minister of Finance.

Comments The design of the deposit insurance system recognizes moral hazard and

mitigates it using the design features of the BFG as much as possible.

EC2 The financial safety net creates and supports appropriate incentives to mitigate

moral hazard. These may include: the promotion of good corporate governance

and sound risk management of individual banks, effective market discipline and

frameworks for, and enforcement of, strong prudential regulation, supervision

and laws and regulations.

Description The financial safety net creates and supports incentives to mitigate moral hazard,

which are as follows (apart from the features enumerated in EC1):

i) operationally independent, transparent and accountable financial safety-

net participants,

ii) the existence of a variety of information sharing and coordination

arrangements (see CP6),

iii) prudential regulations for banks, defined in the Banking Act, detailed in

the KNF recommendations, e.g., recommendations concerning risk

management (Article 9 – 9b, Article 9f of the Banking Act, KNF

recommendations A – D, G, I, M, S, T and KNF Resolution No.

258/2011) and regulations concerning a bank’s exposure (e.g. Article 71

and 79b of the Banking Act),

iv) requirements regarding internal inspection/internal audit in banks

(Article 9c and Article 9d of the Banking Act),

v) KNF Recommendation H (Resolution No 258/2011 of 4 October 2011)

which sets out detailed principles for the functioning of risk management

and internal control systems, specific terms for assessing internal capital,

and the assessment process for maintaining internal capital by banks,

vi) the policy on variable remuneration of senior management,

vii) International Standards for the Professional Practice of Internal Auditing

issued by the Institute of Internal Auditors, which are also used by

internal auditors in Poland,

viii) the BFG’s EWS and the BFG’s creditor priority in the event of a bank’s

failure – shareholders and stakeholders are in claim class four (Division 2

Chapter 1 of the Bankruptcy and Reorganisation Act of 28 February

2003),

ix) banks’ obligations to inform clients who use or are interested in using

their services about a possible lack of guarantee protection (Article 38b

of the BFG Act of 1994), and

x) good corporate governance specified in the Canon of Good Practices of

the Financial Market and Good Banking Practice Principles, and audit

supervision exercised by the National Chamber of Statutory Auditors and

19

the Commission for Audit Supervision.

Comments While the measures taken with respect to promoting good corporate governance,

sound risk management and prudential regulation provide mitigation to moral

hazard, there are a number of deficiencies in the supervisory framework (e.g.

need to enhance independence and powers of the KNF, on-site supervision and

tighten credit and lending policies of financial institutions) continue to hinder the

mitigation of moral hazard and need to be addressed.

Principle 3. Mandate

It is critical that the mandate selected for a deposit insurer be clearly and

formally specified and that there be consistency between the stated public

policy objectives and the powers and responsibilities given to the deposit

insurer.

Overall

Assessment

Compliant

Comments

EC 1. The deposit insurer has a mandate that is clearly defined and formally specified,

for example, through legislation or documents accompanying legislation. The

mandate clarifies the role and responsibilities of the deposit insurer within the

financial safety net.

Description The BFG’s has “paybox-plus” mandate which is clearly defined and formally

specified in the BFG Act of 14 December 1994. The mandate provides for:

1) the functioning of an obligatory and contractual guarantee system (Article 4

(1)), including:

i) specifying for a given year the amount of funds earmarked by the entities

covered by the guarantee system pursuant to the obligation to establish a

fund for protection of guaranteed assets (FPGA) (ex post system),

ii) fulfilling obligations pursuant to the provision of guarantees for funds,

under the conditions stipulated in the BFG Act of 1994, and

iii) supervision over the contractual funds guarantee system.

2) Collecting and analysing information on entities covered by the guarantee

system, including in particular, the conducting of analyses and forecasts

concerning the banking sector (Article 4 (1a)).

3) Providing financial assistance to the entities covered by the guarantee system

(Article 4 (2)), including:

i) granting returnable financial assistance in the case of insolvency threat or

for acquisition of stocks or shares of banks,

ii) acquiring receivables of banks threatened with insolvency,

iii) inspecting with respect to the adequate use of financial assistance as well

as monitoring the economic and financial situation and system of

governance of the bank drawing on financial assistance,

20

iv) specifying the amount of mandatory annual contributions payable to

BFG by the entities covered by the guarantee system, and

v) inspecting and monitoring the implementation of the reorganization

proceedings programme by the entity covered by the guarantee system in

situations stipulated in the BFG Act of 1994.

4) Inspecting the correctness of data included in banks’ calculation systems

(Article 38g(3) and Article 38h (1)).

Comments The above-mentioned mandate can be classified as a predominantly “paybox-

plus” but the requirements for a least cost test for financial assistance and the

participation of the President of the Management Board on the FSC (and

legislation underway to confirm permanent membership on the FSC) could argue

for the BFG being considered a de facto “loss-minimizer” going forward.

EC 2. The mandate is consistent with the stated public policy objectives and the

powers, roles and responsibilities given to the deposit insurer.

Description The mandate is consistent with the stated public policy objectives (see CP1). The

protection of depositors and financial stability is maintained through the

provision of the depositor reimbursement arrangements and supported by data

quality standards and inspection. Further contributions to stability are met by

providing financial assistance on a least cost basis and by risk analysis of

member banks through the BFG’s EWS. The mandate of BFG is also consistent

with its powers necessary to fulfil its responsibilities.

Comment

Principle 4. Powers

A deposit insurer should have all powers necessary to fulfill its mandate and

these should be formally specified. All deposit insurers require the power to

finance reimbursements, enter into contracts, set internal operating budgets and

procedures, and access timely and accurate information to ensure that they can

meet their obligations to depositors promptly.

Overall

Assessment

Compliant

Comments

EC 1. The powers (legal authority) of the deposit insurance system are clearly defined

and formally specified in law or regulation (including approved self-regulation

in the context of private or public deposit insurance systems).

Description BFG’s powers are clearly defined and formally specified in the following legal

acts:

i) the BFG Act of 1994,

ii) the Regulation of the Minister of Finance of 14 September 2009 on

awarding a statutory mandate to the Bank Guarantee Fund,

iii) the Regulation of the Minister of Finance of 27 January 2011 on the

21

requirements for the calculation systems to be maintained by the entities

covered by the mandatory guarantee system (§3 (2) and (3), §5 (3), §9),

iv) the Banking Act (Article 105 (1)(2)(h).

The most important of the BFG’s powers are as follows:

i) taking the decision to grant financial assistance to banks in the case of an

insolvency threat or for acquisition of stocks or shares of banks by new

shareholders,

ii) acquiring receivables of banks threatened with insolvency,

iii) monitoring the adequate use of the above-mentioned financial assistance,

including inspecting on-site bank documents, as well as monitoring the

economic and financial situation and management system of the bank

drawing on financial assistance,

iv) acting as trustee of the bank drawing on financial assistance,

v) processing the personal data of the depositors within the period necessary

to complete tasks determined in the BFG Act of 1994,

vi) financing and carrying out of reimbursement of guaranteed funds,

vii) verifying the correctness of data included in banks’ calculation systems,

viii) demanding timely access to depositor data contained in banks’

calculation system,

ix) applying to the KNF for undertaking measures within the framework of

supervision, within the scope of the proper functioning of the calculation

system,

x) cooperating with officially recognized deposit guarantee schemes in

other countries, and

xi) entering into agreements.

In addition, the BFG Management Board is provided with the following powers:

i) managing the BFG and representing it externally in contacts with third

parties,

ii) managing the resources of the BFG,

iii) applying for a short-term loan with the NBP,

iv) making a motion to the KNF to postpone the date for reimbursement of

guaranteed funds,

v) taking a series of decisions during the reimbursement process,

particularly in terms of the following:

• supervising the drafting of the list of depositors,

• choosing a procedure of reimbursement of guaranteed funds (the

entity responsible for reimbursing guaranteed funds),

• supervising the reimbursement of guaranteed funds,

• determining the amount of mandatory contributions from banks and

the date of their payment, and

• establishing rules and procedures for the determination of the

depositor’s identity.

The BFG Management Board may also institute by-laws and regulations in

relation to the management of BFG and related administrative matters. In

22

accordance with the BFG Act and the Statutes of BFG, the BFG Council shall

supervise the activities of the BFG and shall also have powers including, but not

limited to:

i) adopting corporate plans and financial plans for the BFG,

ii) determining the rates of the mandatory annual contribution and the

FPGS;

iii) defining the principles and forms of providing financial assistance to the

entities covered by the guarantee system,

iv) defining the principles and forms of collateral in relation to the provision

of financial assistance,

v) adopting organizational rules of procedure for the BFG Management

Board, and

vi) making decisions about reimbursing the guaranteed funds from the

BFG’s own assets.

Comment

EC 2. The powers of the deposit insurer are aligned to its mandate and public policy

objectives.

Comments The powers of the BFG are consistent with its mandate and public policy

objectives as stipulated in the BFG Act of 1994 (see also CP1).

EC 3. The deposit insurer has the following minimum powers:

(a) compel member banks to comply with their obligations to the deposit

insurer, or request that the supervisor or another safety-net particpant

do so on behalf of the deposit insurer;

(b) have the legal authority and capability to reimburse depositors;

(c) enter into contracts (e.g., agreements/transactions to obtain goods

and services/insurance);

(d) set internal operating budgets and internal policies and procedures

(e.g., in areas such as human resources and information technology);

(e) access timely and accurate information to promptly meet their

obligations to depositors;

(f) share information with other safety-net participants;

(g) engage in information sharing and coordination agreements with

deposit insurers in other jurisdictions (subject to confidentiality when

required); and

(h) engage in contingency planning.

Description The BFG may compel its members to comply with their obligations or request

that the KNF do so. These powers include:

23

i) a procedure for pursuing the BFG’s claims against banks (with no need

to provide an enforcement clause) only on the basis of a declaration by

BFG (Article 37 of the BFG Act of 1994),

ii) powers to apply to the KNF for undertaking measures within the

framework of supervision, within the scope of proper functioning of the

calculation systems (Article 38i (7) of the BFG Act of 1994),

iii) criminal liability on the part of banks for failing to establish an ex post

fund while causing BFG to incur losses arising from the necessity of

reimbursement of guaranteed funds (Article 42 of the BFG Act of 1994)

and,

iv) possibility to be appointed by KNF as a trustee for the bank which

obtained the BFG’s financial assistance (Article 20a (2) of the BFG Act

of 1994),

The KNF has powers under the provisions on criminal liability in case of non-

performance or mis-performance by the bank obligations relating to

implementing and maintaining a properly functioning calculation system (Article

38i (2) – (4) of the BFG Act of 1994), and it can establish the trustee

administrator responsible in the process of disbursement of guaranteed funds,

inter alia, for drafting and sending the depositors list to BFG.

Furthermore, in accordance with the agreement on cooperation and exchange of

information between KNF and BFG, the parties mutually agreed, if in the course

of conducting statutory tasks they receive information that they consider as

necessary for the other party for the proper execution of its statutory tasks, to

send such information to the other party on their own initiative (§ 10). This gives

BFG the right to submit to the KNF identified irregularities about the activities

of individual banks.

Additionally, the BFG has the following powers in relation to ensuring that

banks participate in the deposit guarantee system:

i) specifying the amount of mandatory payments of banks in the event of

fulfillment of the guarantee condition (from the FPGS) as well as the

dates of these payments,

ii) specifying the amount of mandatory annual contributions payable to

BFG by the entities covered by the guarantee system.

The BFG has the legal authority and capability to reimburse guaranteed funds to

depositors. The most important of the BFG’s powers in this respect are as

follows:

i) specifying for a given year the amount of funds set aside by the entities

covered by the guarantee system in connection with the obligation to

establish a FPGS,

ii) specifying the amount of mandatory payments of banks in the event of

fulfillment of the guarantee condition (from the FPGS) as well as the

24

dates of these payments,

iii) disbursing the guaranteed funds from the BFG’s own funds (in the case

specified in the BFG Act of 1994),

iv) specifying the amount of mandatory annual contributions payable to

BFG by the entities covered by the guarantee system;

v) applying for a short-term loan with the NBP as well as for a loan or a

grant from the state budget,

vi) receiving the depositors list,

vii) supervising the drafting of the depositors list and processing the

personal data of the depositors,

viii) ensuring the correctness of individual data on the depositors list,

ix) choosing the manner of disbursement (the entity responsible for

disbursement),

x) determining the method of disbursement,

xi) supervising the disbursement of guaranteed funds,

xii) receiving the settlement records pertaining to completed disbursement,

xiii) verifying the correctness of data included in banks’ calculation systems,

and

xiv) receiving information on entities covered by the guarantee system that

may affect the BFG performance.

The BFG is a legal entity (Article 3 (2) of the BFG Act of 1994) and has the

legal capacity to perform acts in law, capacity to be a party in court proceedings

as well as capacity to perform actions in court proceedings and enter into

contracts.

The BFG has an annual budget, which is developed (in the form of a financial

plan) by the BFG Management Board, and is adopted by the BFG Council. The

financial plan in particular, determines the budget for staff training, investment

in IT and staff remuneration which is sufficient for the operations of the BFG.

The BFG can access timely and accurate information on its member banks.

Prior to the fulfillment of guarantee conditions, the BFG has the right to:

i) receive from KNF any information on the emergence of circumstances

that could result in liabilities of BFG to depositors on account of

guaranteed assets (Article 38 (3a) of the BFG Act of 1994),

ii) receive from the NBP and KNF any information on the financial standing

of the bank and actions undertaken towards it in the event of receiving

information on losses incurred by the bank, threat of such losses or

insolvency threat (Article 38 (3) of the BFG Act of 1994),

iii) receive from the NBP, the Minister of Finance, KNF and the Supreme

Audit Office any information on banks affecting the execution of the

BFG’s tasks (Article 38 (4) of the BFG Act of 1994),

iv) verify the correctness of data in banks’ calculation systems (Article 38g

(3) and Article 38h (1) of BFG Act of 1994),

v) receive from banks monthly information on the value of guaranteed

funds (§5 (1) of the Resolution of the NBP President on the scope,

25

procedures and dates of reporting to the BFG by banks covered by the

mandatory deposit guarantee system).

The BFG has also the right to receive from the trustee administrator the list of

depositors, no later than within 3 working days from the day of fulfillment of the

guarantee condition, drawn up on the basis of the calculation system of the bank

(Article 26i (1) and Article 26g of the BFG Act of 1994).

The scope and structure of the data on the list of depositors must be pursuant to

the Regulation of the Minister of Finance on the requirements for the calculation

systems to be maintained by the entities covered by the mandatory guarantee

system (Appendix 2 to the Regulation). The BFG Management Board shall

supervise the drafting of the list of depositors by the trustee administrator

(Article 26h of the BFG Act of 1994).

The scope and procedures of the exchange information between BFG and other

members of the financial safety net (e.g., KNF and NBP) are defined in Article

38 of the BFG Act of 1994. In accordance with that provision, BFG has

concluded the following agreements:

i) the agreement on the subject, scope, procedures and terms for the

submission of information to the BFG by the NBP,

ii) the agreement on the cooperation and exchange of information between

the KNF and the BFG, and

iii) the BFG also participates in the FSC.

The detailed scope of the sharing of information with other members of the

financial safety net is described in CP6 (Relationships with other safety-net

participants).

Pursuant to Article 38c of the BFG Act of 1994, the BFG, by virtue of mutuality,

may cooperate with entities responsible for the officially recognized guarantee

systems in other countries. The BFG has the right to conclude agreements on

information sharing with those entities. The BFG has concluded agreements on

cooperation and information sharing with four foreign deposit guarantee systems

(see CP7).

At the level of the financial safety net, the FSC is responsible for emergency and

contingency planning. This includes developing and implementing procedures

for cooperation of members of the financial safety net in case of a threat to the

stability of the domestic financial system (Article 3(1)(2) of the Act on the

Financial Stability Committee).

Pursuant to Article 38k of the BFG Act of 1994, at least once a year and at the

request of the minister competent for financial institutions, the BFG shall carry

out effectiveness tests of its systems, particularly within the scope of

reimbursement of guaranteed funds on a statutorily fixed date. These tests were

26

carried out in November and December 2012. The BFG has a Business

Continuity Plan and also has a back-up site in the event of circumstances arising

preventing the use of headquarters. The BFG carries out regular business

interruption response exercises to familiarize employees with the BCP

procedures.

Comments

EC 4. In support of the deposit insurance system, the other participants in the financial

safety net are provided with all powers necessary to fulfill their mandates (see

Preconditions).

Description The powers of other members of the financial safety net regarding the deposit

insurance system (KNF, NBP, the MoF and the FSC) are referenced in the

following acts:

i) the BFG Act of 1994,

ii) the Act on the National Bank of Poland,

iii) the Banking Act,

iv) the Act on Financial Market Supervision,

v) the Act on the Financial Stability Committee.

Comments An assessment of Preconditions and the review of the supervisory/regulatory

system indicate there are a number of areas where the independence and powers

of the KNF are deficient and could impact the deposit insurance system.

Principle 5. Governance

The deposit insurer should be operationally independent, transparent,

accountable and insulated from undue political and industry influence.

Overall

Assessment

Largely Compliant

Comments The governance structure of the BFG is largely compliant overall and

demonstrates operational independence, transparency, accountability and

integrity. However, there are some areas where governance arrangements could

be enhanced further. For example, although no BFG Council members are

actively working in commercial or cooperative banks, the presence of two

representatives from the PBA raises potential conflict of interest issues which

are not possible to entirely mitigate with existing arrangements. The duration of

the terms of appointment for both the BFG Council and Management Board are

both three years. Consideration could be given to altering the terms of either the

Council or Management Board to ensure that the possibility of having a

significant number of Fund and Management Board members seeing their terms

expire at the same time is minimized.

27

EC 1. The deposit insurer is able to use the powers and means assigned to it without

undue influence from external parties. There is in practice no significant

evidence of government or industry interference in the operational independence

of the deposit insurer and its ability to obtain and deploy the resources needed to

carry out its mandate.

Description The BFG is a public institution. Supervision of the BFG is carried out by the

Minister of Finance to such an extent as said supervision pertains to meeting

legal criteria and accordance with the Statutes (Article 3 (5) of the BFG Act of

1994). In context of said supervision, should it be determined that the mandate

of BFG has been discharged in violation of the law, the Minister may submit a

request to the BFG Council to recall such members of the BFG Management

Board who are responsible for the irregularities (Article 3 (6) of the BFG Act of

1994). The decision on recalling the member(s) of the BFG Management Board

is taken by the BFG Council.

The governing bodies of BFG are: the BFG Council and the BFG Management

Board. Individuals discharging the duties of members of the governing bodies of

BFG may not be members of the governing bodies of banks nor may they be

employees of banks (Article 5 of the BFG Act of 1994). The BFG Council

consists of:

i) the Chairperson of the BFG Council who is appointed (and recalled) by

the minister competent for financial institutions, having consulted the

President of the NBP and the Chairperson of the KNF,

ii) members of the BFG Council who are appointed (and recalled) as

follows:

a. two of them - by the minister competent for financial institutions,

b. two of them - by the President of the NBP,

c. one of them - by the Chairperson of the KNF,

d. two of them - by the PBA stipulated in the BFG Statutes (Article

6 (3) and (4) of the BFG Act of 1994).

Additionally, in accordance with the Statutes (§ 7 (2)), in case of members of the

BFG Council appointed by the PBA, their appointment should be carried out in

such a way as would assure the representation of the entire banking sector,

taking into account the capital structure.

The BFG Council monitors and supervises the operations of BFG and consists of

between 3 and 5 members, including its President and his or her Deputy. The

BFG Management Board manages the Bank Guarantee Fund and represents it in

contacts with third parties.

The BFG is independent in its formulation of the annual financial plan, which

constitutes the basis for its financial operations. The financial plan is compiled

by the BFG Management Board and is adopted by the BFG Council by the end

of the financial year of the year prior to the one to which the said plan pertains.

28

Points specified in the financial plan include the amount of funds allocated for

particular tasks of the BFG.

Comments Although no BFG Council members are actively allowed to be working in

commercial or cooperative banks, the presence of two representatives from the

PBA raises potential conflict of interest issues which are not possible to entirely

mitigate with existing arrangements (e.g., masking data on individual banks).

EC 2. The operational funding of the deposit insurer is provided in a manner that does

not undermine its autonomy or independence and permits it to fulfil its mandate.

Examples include:

(a) Salary scales that allow it to attract and retain qualified staff;

(b) The ability to hire outside experts to deal with special situations, subject

to appropriate confidentiality restrictions;

(c) A training budget and programme that provides appropriate training

opportunities for staff;

(d) A budget for computers and other equipment sufficient to equip its staff

with tools needed to fulfil its mandate; and

(e) A travel budget that allows appropriate on-site work.

Description The BFG is independent in its formulation of its annual financial plan, which

constitutes the basis for its financial operations. The financial plan is compiled

by the BFG Management Board and is adopted by the BFG Council by the end

of the financial year.

Determining the remuneration levels of BFG employees is the autonomous

decision of the President of the BFG Management Board.

In accordance with the financial plan for 2012, expenditures due to BFG

employee remuneration amounted to 43 percent of total costs. In the 2013

financial plan, BFG employee remuneration will increase 18 percent compared

to 2012. According to the BFG activity plan for 2013 (Corporate Plan of the

Bank Guarantee Fund for 2013. The Strategic Directions of Development), an

increase in the number of BFG staff is expected to a figure of 100 full-time

positions, along with an allocation of additional resources. 10

The BFG, having legal person status and thereby being fully entitled to enter into

legally binding agreements, has the right to contract the services of external

experts. Persons providing services to BFG are bound by a confidentiality

agreement not to divulge information whose disclosure might cause impairment

to or otherwise be against the best interests of BFG as well as legally protected

information as defined in general legal provisions and internal legal acts (e.g.,

10

The salary freeze in effect for the KNF does not apply to the BFG.

29

acts pertaining to personal data, bank secrets etc.).

The BFG formulates plans for annual training, and funds for training are

allocated in the financial plan. According to the 2012 financial plan,

expenditures on domestic training courses amounted to 1 per cent of total costs.

Foreign training courses are in a separate cost category. In the 2013 financial

plan, funds that have been allocated for staff training are the same amount as in

2012.

Funds for capital expenditures on and maintenance of IT hardware and software

are allocated in the annual BFG financial plan. According to the 2012 financial

plan, expenditures on tangible assets and services in the area of IT amounted to

11 per cent of total costs. In the 2013 financial plan, funds that have been

allocated for IT are increasing of 53 per cent in comparison with 2012.

Funds for business travel are allocated in the annual BFG financial plan.

According to the 2012 financial plan, expenditures on business travel amounted

to 1.6 per cent of total costs.

Comments The amount of the annual budget devoted to training appears low at 1 per cent.

In light of the planned entry into BFG membership of credit unions and the

planned expansion in resolution powers, consideration should be given to

increasing resources devoted to staff training. It should also be noted that in

addition to staff training, additional resources and expertise would be merited as

resolution requires a different skill set than is presently the case with the BFG’s

existing mandate.

EC 3. The governing statute, internal policies of the deposit insurer or other relevant

laws or policies specify:

(a) the governing body and management are fit and proper persons and have

the requisite knowledge or experience;

(b) members of the governing body (with the exception of ex-officio

appointees) and the head of the deposit insurer are subject to limitations

on their term of appointment; and

(c) members of the governing body can be removed from office during their

term only for reasons specified or defined in law or rules of professional

conduct, and not without cause.

Description The BFG Act of 1994 specifies the composition and mode of appointment of the

BFG’s governing bodies and requirements for persons performing functions in

these bodies. Individuals in the BFG’s governing bodies may not be in the

governing bodies of banks nor may they be employees of banks (Article 5 (2)).

The chairperson and members of the BFG Council have to meet all of the

following conditions (Article 6 (2) of the BFG Act of 1994):

i) possess full capacity to perform acts in law;

ii) have higher education diploma;

30

iii) have no record of conviction for intentional offence or fiscal offence;

iv) possess knowledge and experience in the scope of banking.

The Chairperson of the BFG Council is appointed by the minister competent for

financial institutions, having consulted the President of the NBP and the

Chairperson of the KNF.

Each member of the BFG Management Board has to meet all of the following

conditions (Article 9 (2) of the BFG Act of 1994):

i) possess full capacity to perform acts in law;

ii) have higher education diploma;

iii) have no record of conviction for intentional offence or fiscal offence;

iv) possess at least 5-years work experience in banking on a managerial

position.

The term of office of the BFG Council is 3 years (Article 6 (7)) and the term of

office of the BFG Management Board is 3 years from the day of appointment by

the BFG Council (Article 9 (4)).

The rules governing recalling individuals who are in the governing bodies of

BFG are as follows (Article 6 (3) and (4) as well Article 9 (6)):

i) the Chairperson of the BFG Council can be recalled by the minister

competent for financial institutions, having consulted the President of the

NBP and the Chairperson of the KNF;

ii) members of the BFG Council can be appointed and recalled as follows:

­ two of them - by the minister competent for financial institutions,

­ two of them - by the President of the National Bank of Poland,

­ one of them - by the Chairperson of the Polish Financial Supervision

Authority,

­ two of them - by the Association of Polish Banks under conditions

stipulated in the BFG's Statutes (Article 6 (3) and (4));

• members of the BFG Management Board, including the President and his

or her Deputy, may be recalled from their post effective immediately by

the BFG Council.

Rejection of the Council of Ministers of the activity report of BFG for the

preceding year shall result in the expiration of the mandate of all members of the

BFG’s governing bodies, with the caveat that they shall continue in office until

the appointment of new members of the BFG’s governing bodies (Article 17

(5)). This regulation does not apply to members of the governing bodies of BFG

whose terms of office do not coincide with the time span of the BFG activity

report.

In context of supervision conducted by the Minister of Finance, should it be

determined that the mandate of BFG has been discharged in violation of the law,

31

the Minister may submit a request to the BFG Council to recall such member of

the BFG Management Board as is responsible for the irregularities (Article 3 (6)

of the BFG Act of 1994). The decision on recalling the member of the BFG

Management Board is taken by the BFG Council.

As regards persons who are members of the BFG Council, the regulations

contained in the BFG Act of 1994 are congruent with the BFG Statutes, as it is

stated in § 7 (1) of the BFG Statutes that the Chairman and members of the BFG

Council are appointed and recalled in accordance with the procedure laid down

in the BFG Act of 1994.

Comments The duration of the terms of appointment for both the BFG Council and

Management Board are both three years. Consideration should be given to

altering the terms of either the BFG Council or Management Board to ensure

that the possibility of having a significant number of members seeing their terms

expire at the same time is avoided.

EC 4. The members of the governing body (e.g., directors or officers) and management

of the deposit insurer are held accountable to a higher authority, whether public

or private, through a transparent framework for the discharge of the system’s

duties in relation to its objectives and mandate.

Description See EC 1 and 3.

Comments

EC 5. The deposit insurer operates in a transparent and responsible manner. It discloses

and publishes on a regular basis appropriate information on its activities,

governance practices, structure and financial results.

Description The BFG annually compiles an activity report and a financial report for the

previous year and the BFG Council submits these reports for approval by the

Council of Ministers, having first received approval by the Minister of Finance

(Article 17 (1) and (3) of the BFG Act of 1994).

On the basis of the regulations contained in the Accounting Act of 29 September

1994, the annual financial reports of BFG are published in the official journal of

the Republic of Poland (Polish Monitor B).

The annual activity report of BFG is, along with other information on its

operations (e.g. the composition of its governing bodies), available to the public

on the BFG website.

Comments

EC 6. The deposit insurer is structured such that the potential for conflicts of interest

for or between members of the governing body and management is minimised

and that they are subjected to appropriate codes of conduct/ethics.

Description The statutory interdependencies between the governing bodies of the BFG are

32

described in EC1, EC3 and EC4.

The competencies of the BFG Council and the BFG Management Board are

independent of one another with no significant conflict of interest issues arising.

Supervising and monitoring the operations of the BFG Management Board is

one of the tasks of the BFG Council (Article 7 (2)(1) of the BFG Act of 1994).

The BFG Management Board manages BFG and represents BFG with respect to

third parties (Article 10 (1) of the BFG Act of 1994).

Persons performing functions in the BFG’s governing bodies cannot perform

functions in the governing bodies of banks or be employed in banks (Article 5

(2) of the BFG Act of 1994).

Comments

EC 7. The deposit insurer takes into consideration the views of stakeholders.

Description The taking into account of the opinions of different deposit guarantee system

participants by the BFG is supported by statutory regulations contained in the

BFG Act of 1994, which include representation by the PBA in the Council of the

BFG. Moreover, representatives of the BFG take part in annual general meetings

of the PBA and the PBA is consulted on premium rate changes.

Comments Although representation of the PBA in the Council of the BFG supports

stakeholder consultation, this is not a recommended good practice due to

potential conflicts of interest. Other alternatives, such as establishing an external

advisory committee made up of PBA representatives and others, would be more

appropriate. Stakeholder consultation could also be wider and encompass

formal consultation from other bodies such as consumer groups.

EC 8. Where decision making is delegated by the governing body of the deposit insurer

to its employees, the governing body has appropriate procedures to oversee the

exercise of delegation.

Description The delegating of decisions by the BFG Management Board or the President of

the BFG Management Board to BFG employees is regulated by the internal

regulations of BFG. These regulations are subject to periodic reviews and update

with respect to their ongoing validity and applicability.

Supervision of the operations of the BFG is carried out by the BFG Council.

An independent internal audit unit as well as an independent operational risk unit

have been established within BFG, and their activities contribute to monitoring

and auditing the execution of tasks and to mitigating operational risk in BFG.

Comments

EC 9. The deposit insurer is subjected to regular external audits with reports provided

to the authority to which it is accountable.

Description The financial statement of the BFG is subject to audit by an entity authorised

33

under separate provisions and selected by way of tender by the BFG Council

(Article 17 (2)). By 30 June each year the BFG Council, having received the

opinion of the minister competent for financial institutions, shall submit to the

Council of Ministers for approval the activity report of BFG for the preceding

year and the financial statement attached thereto with a result of the audit

(Article 17 (3)).

Comments

EC 10. The deposit insurer has a governing body approved strategic plan in place.

Description Adoption of the BFG’s strategic activity plans and financial plans is within the

purview of the Council of the BFG (Article 7 (2)(2) of the BFG Act of 1994 and

§ 41 (3) of the BFG Statutes).

Depending on the scale of the tasks, these plans may also increase their scope to

a range of multiple years; an example would be an activity plan adopted for the

period 2009-2011. On account of the ongoing legislative process pertaining to

developing a new BFG mandate, an activity plan going beyond 2012 was not

adopted in 2011. In December 2012 an activity plan for 2013 was adopted –

Corporate Plan of the Bank Guarantee Fund for 2013. The Strategic Directions

of Development – which incorporates the planned new mandate for the BFG.

Comment

EC 11. Regular board meetings are held (e.g., on a quarterly basis or more frequently as

deemed necessary).

Description Meetings of the BFG Council take place at least once per month. Meetings of

the BFG Management Board are convened as required, but no less frequently

than once every two weeks. In 2012, 12 meetings of the BFG Council took

place and 63 meetings of the BFG Management Board.

Comment

AC 1. The deposit insurer adheres to best practices in corporate governance, such as:

(a) Regular assessments of the extent to which the governing body is

meeting its objectives are carried out. Systems and practices are in place

to facilitate assessments of its effectiveness; and

(b) The governing body has a well-defined charter that outlines the specific

powers reserved for the board and those delegated to management.

Comments The BFG Council evaluates the performance of the BFG Management Board in

the conduct of its duties. The BFG Council approves the BFG activity plans and

BFG financial plans (Article 7 (2)(3b) of the BFG Act of 1994) as well as the

quarterly activity reports of BFG (§ 44 and 45 of the BFG Statutes). Annual

activity reports along with financial reports are submitted by the BFG Council to

the Council of Ministers for approval, after their prior approval by the Minister

of Finance.

34

Principle 6. Relationships with other safety-net participants

A framework should be in place for the close coordination and information

sharing, on a routine basis as well as in relation to particular banks, among the

deposit insurer and other financial system safety-net participants. Such

information should be accurate and timely (subject to confidentiality when

required). Information-sharing and coordination arrangements should be

formalised.

Overall

Assessment

Compliant

Comments Formal information sharing and coordination agreements have been developed

between the BFG and the safety-net participants which fully support the BFG in

fulfilling its mandate.

EC 1. A framework for timely information sharing and the coordination of actions

among the deposit insurer and other safety-net participants, on a routine basis as

well as in relation to particular banks, is explicit and formalised through

legislation, regulation, memoranda of understanding, legal agreements or a

combination of these instruments.

Description The BFG receives from safety-net participants, as well as from banks, adequate

and timely information allowing prompt and effective payout procedures. The

BFG has the right to request from banks, at any time, the data necessary to carry

out its mandate, particularly reimbursement and financial assistance processes.

The exchange of information among safety-net participants as well as the banks

is formalised through legislation and agreements.

The fundamental regulations ensuring that the BFG has access to timely

information about the possibility of fulfilling the guarantee condition with

respect to a bank covered by the deposit guarantee scheme are as follows:

i) Article 38 (3a) of the BFG Act of 1994 stipulates that the KNF shall pass

to the BFG any information on the emergence of circumstances that

could result in liabilities for the BFG to depositors on account of the

guaranteed assets,

ii) Article 38 (3) of the BFG Act of 1994, stipulating that the NBP and KNF

shall provide the BFG with information on the financial standing of the

entity covered by the guarantee system and actions undertaken towards it

pursuant to separate provisions in the case of receiving information on

the occurrence of loss in the bank, threat of such occurrence or

insolvency threat,

iii) Article 38 (1) of the BFG Act of 1994, stipulating that the KNF at the

request of the BFG Management Board, shall provide BFG with

information on the standing of entities covered by the guarantee system

which submitted to BFG the application for financial assistance, in the

scope necessary to evaluate the plan of using the BFG’s assistance in

order to rehabilitate the bank’s business or to merge with another bank,

iv) Article 38 (2) of the BFG Act of 1994, stipulating that the KNF shall

provide the BFG with annual financial statements of banks covered by

35

the guarantee system within 30 days from the day of their receipt,

v) Article 38 (4) of the BFG Act of 1994, stipulating that BFG is entitled to

obtain information concerning entities covered by the guarantee system

affecting the implementtion of its tasks, held by the NBP, the minister

competent for financial institutions, the KNF and the Supreme Audit

Office. In executing said provision, BFG has entered into an agreement

with the NBP on the subject, scope, procedures and terms for the

submission information to the BFG by the NBP. The system of

information provision by the NBP is called the System of Information

Reporting of the NBP,

vi) Article 38 (6) and (7) of the BFG Act of 1994, on the the basis of which

banks covered by the guarantee system are obliged to provide BFG with

information other than those provided by the NBP, necessarry for the

execution of the BFG’s tasks.

vii) Article 20a (1) of the BFG Act of 1994, on the basis of which the KNF

shall immediately notify the BFG Management Board of the necessity to

initiate reorganization proceedings by the management board of the bank.

The exchange of information between the BFG and KNF is further regulated by

Article 17 of the Act on Financial Market Supervision. On the basis of this

provision, the BFG has entered into a cooperation and information exchange

agreement with KNF. As far as the NBP is concerned, the provisions of Article

38 (4) of the BFG Act of 1994 obliges BFG to provide to NBP information that

is necessary to assess the stability and risk of the banking system. The Exchange

of information between safety-net participants has also been supported by the

FSC.

Comments

EC 2. Planning and operations of safety-net participants, both individually and

together, not only cover past and ongoing circumstances but also consider

plausible future scenarios.

Description The individual scope of planning and operations by the BFG encompasses

consideration of plausible future scenarios, the central component of which is the

BFG’s EWS. The inter-institutional scope of planning and operations by BFG,

along with other safety-net participants, encompasses consideration of plausible

future scenarios and contingency planning. Under the FSC process, joint crisis

simulation exercises have been undertaken.

The BFG carries out effectiveness tests with respect to its data systems at least

once per annum, especially in terms of the payout process and crisis

communications. The BFG employees as well as agent banks take part in these

tests.

Comments

36

EC 3. All deposit insurers are provided with information on a timely basis to be able to

reimburse depositors’ claims promptly including information on the amount of

insured deposits held by individual depositors.

Description Pursuant to the BFG Act of 1994:

i) The trustee administrator of the bank shall, without delay, but no later

than within 3 working days from the day of fulfilment of the guarantee

condition, submit the depositor list to BFG (Article 26i (1)), which is a

document on the basis of which disbursement of guaranteed deposits is

carried out. The BFG Management Board shall exercise ongoing

monitoring and supervision over drafting the list of depositors by the

trustee administrator (Article 26h (1)-(3)).

ii) Pursuant to Article 26g (2), the scope and structure of the data contained

in the depositor list must accord with the Regulation of the Minister of

Finance of 27 January 2011 on the requirements for the calculation

systems to be maintained by the entities covered by the mandatory

guarantee system (Annex no. 2 to said Regulation). Included in the data

provided to BFG are personal data of depositors as well as the amount of

guaranteed funds said depositors are due to receive, along with

information about the basis for their calculation (detailed information on

individual accounts and other liabilities).

In case of reasonable doubt as to the correctness of individual data on the

depositor list, the BFG has the right to demand verification of said data by the

trustee administrator (Article 26i (2)).

In order to ensure the correctness of information on depositors and on their

claims in the event of the guarantee condition being fulfilled, banks covered

under the deposit guarantee scheme are obliged to maintain calculation systems

(Article 38e), and BFG has been granted the right to verify the correctness of

data contained in bank calculation systems (Article 38g (3) and 38h (1)). The

scope and structure of the data that must be contained in a bank’s calculation

system are stipulated by the Regulation of the Minister of Finance of 27 January

2011 on the requirements for the calculation systems to be maintained by the

entities covered by the mandatory guarantee system of 27 January 2011.

The BFG has the right to receive, on an ongoing basis, data contained in bank

calculation systems that is necessary to carry out disbursement of guaranteed

funds, thereby enabling BFG to monitor said data for correctness.

Comments

EC 4. Rules regarding confidentiality of information apply to all safety-net participants

and the exchange of information among them.

Description With regard to the provision information, the BFG (as are other financial safety-

net participants) is obliged to comply with the following legal acts:

i) the BFG Act of 1994: Article 38a in particular (data obtained in the

37

manner of Article 38 cannot be passed to other entities by BFG),

ii) the Banking Act – Article 10a,

iii) the Law on the Protection of Classified Information,

iv) the Personal Data Protection Act, and

v) other legal acts, under which financial safety-net participants operate.

The above-mentioned acts specify data which are protected by the law as well as

procedures of such a protection.

Comments

EC 5. The safety-net participants make information on banks that are in financial

difficulty or are expected to be in financial difficulty available to the deposit

insurer in advance and, where confidentiality requirements prevent this, or where

the information is not available from other safety-net participants, the deposit

insurer has the power to collect information directly from such banks.

Description The BFG has the right to receive timely and adequate information about threats

in the banking sector in advance from safety-net participants, pursuant to the Act

on BFG and Banking Law.

As described in EC1, the BFG:

i) has access to timely information about the possibility of fulfilling the

guarantee condition with respect to banks covered by the deposit

guarantee scheme, and

ii) receives on a regular basis information from other financial safety-net

participants concerning entities covered by the guarantee system which

affects the implementation of BFG tasks.

Comments

AC 1. A deposit insurer with a broader mandate, such as “loss-” or “risk-

minimisation”, has access to timely and accurate information so that it can assess

the financial condition of individual banks, as well as the banking industry.

These deposit insurers may also need access to information regarding the value

of the bank’s assets and the expected time frame for the liquidation process,

given that the value of a bank’s assets depends, in part, on the time necessary to

liquidate them.

Description See responses to EC 1, 2, 3 and 4. Although the BFG is not considered to be a

“loss-minimizer” deposit insurer presently, it receives a significant amout of

detailed financial information on its member banks allowing for detailed off-site

risk analysis.

Comments

38

Principle 7. Cross-border issues

Provided confidentiality is ensured, all relevant information should be

exchanged between deposit insurers in different jurisdictions and possibly

between deposit insurers and other foreign safety-net participants when

appropriate. In circumstances where more than one deposit insurer will be

responsible for coverage, it is important to determine which deposit insurer or

insurers will be responsible for the reimbursement process. The deposit

insurance already provided by the home country system should be recognised

in the determination of levies and premiums.

Overall

Assessment

Compliant

Comments

EC 1. Appropriate cross-border bilateral/multilateral agreements are in place in

circumstances where, due to the presence of cross-border banking operations,

coverage for deposits in foreign branches is provided by the deposit insurer in

another jurisdiction or by a combination of deposit insurers in different

jurisdictions. For example, where the home country system provides coverage

for the branches of its domestic bank, banks in the host countries and/or the host

country system provides supplementary coverage for foreign bank branches.

a) The agreements involve appropriate home and host deposit insurers as

well as other appropriate financial safety-net participants when

appropriate, including in circumstances where one deposit insurer will be

solely responsible for coverage.

b) The agreements provide for ongoing close coordination and information

sharing between home/host deposit insurers and possibly other safety net

participants, as well as in relation to particular banks when necessary.

c) The agreements specify which deposit insurer or insurers will be

responsible for reimbursement as well as premium assessment, cost

sharing, and the deposit insurance public awareness issues raised by

cross-border banking.

Description In accordance with Directive 94/19/EC, branches of Polish domestic banks

operating abroad in EU countries are covered by the Polish deposit guarantee

system. Similarly, EU credit institutions with branches operating in Poland are

covered by a guarantee system in their country of origin.

In a situation where the amount of funds guaranteed by the country-of-origin

guarantee system is lower than the amount guaranteed by the BFG, that credit

institution’s branch may join the BFG in order to increase the amount of

39

coverage (Article 2b of the BFG Act of 1994). The conditions of participation of

a credit institution’s branch in the Polish guarantee system is determined by the

BFG Management Board in consultation with the competent authority of the

country-of-origin guarantee scheme.

Presently, no EU (foreign) credit institution has joined the BFG nor has any

branch of a domestic Polish bank operating abroad increased the amount of

coverage within the system of the host country. Nevertheless, in order to be

proactive the BFG has entered into cooperation and information exchange

agreements with the following guarantee deposit systems:

i) Agreement between Bankowy Fundusz Gwarancyjny, Poland and

Insättningsgarantinämnden, Sweden (June 2006),

ii) Agreement between Garantifonden for indskydere og investorer,

Denmark and Bankowy Fundusz Gwarancyjny, Poland (January 2007),

iii) Memorandum of Understanding between Bank Guarantee Fund and State

Corporation «Deposit Insurance Agency» (February 2007),

iv) Memorandum of Understanding between the Deposit Guarantee Fund,

Ukraine and the Bank Guarantee Fund, Poland (25 March 2011), and

European Forum of Deposit Insurers Multilateral Memorandum of

Understanding (29 September 2010 r.) – the BFG is one of 18 deposit

guarantee schemes which signed the Memorandum.

According to Article 38c of the BFG Act of 1994, the BFG may conclude

agreements with deposit guarantee schemes with regards to principles of

cooperation, the scope of information exchanged and confidentiality provisions.

In addition to BFG agreements, the KNF has concluded a number of MOUs with

key foreign jurisdictions.

Comments It should be noted that non-EU foreign banks operating in Poland must be

incorporated as subsidiaries to be members of the BFG.

EC 2. Depositors in the jurisdictions affected by cross-border banking arrangements

are provided with clear and easily understandable information on the existence

and identification of the deposit insurance system legally responsible for

reimbursement and the limits and scope of coverage. Information on the deposit

insurance system’s source of funding and claims procedures and reimbursement

options is made available to affected depositors (e.g., such as on the deposit

insurer’s website, through printed materials or similar means).

Description Banks covered by the BFG are obliged to provide information to customers on

the deposit guarantee system (Article 38b of the BFG Act of 1994). Banks are

also obliged to inform customers and other persons about their participation in

the obligatory guarantee system and about the principles of its functioning.

40

In the case of branches of credit institutions and branches of foreign banks not

participating in the BFG, their disclosure obligations to customers are defined in

Article 40a (1a) - (1g) and Article 48 of the Banking Act. Presently, no foreign

branches operate in Poland.

Comments

AC 1. Where a deposit insurer perceives a real risk that it may be required to protect

depositors in another jurisdiction, its contingency planning allows for cross-

border arrangements or agreements. For example, it has an agreement with the

deposit insurer in that jurisdiction to provide for insured depositor

reimbursements.

Description Presently, under the European Forum of Deposit Insurers (EFDI) there is

ongoing work on a draft agreement between EFDI members (the document

“Model/Framework claims handling agreement”) to assist in contingency

planning.

Comments

Principle 8. Compulsory membership

Membership in the deposit insurance system should be compulsory for all

financial institutions accepting deposits from those deemed most in need of

protection (e.g., retail and small business depositors) to avoid adverse

selection.

Overall

Assessment

Compliant

Comments Membership in the BFG is compulsory for all domestic banks and foreign bank

branches which, in accordance with the Directive 94/19/EC, are not covered by

their respective home country system. Legislation is in process which would

extend BFG membership to cooperative savings and credit unions.

EC 1. Membership in a deposit insurance system is compulsory for all financial

institutions accepting deposits from those deemed most in need of protection

(e.g., retail or individual depositors and small business depositors).

Description Membership in the BFG is compulsory for all domestic banks and branches of

foreign banks within the meaning of the Banking Act, provided that they do not

participate in another guarantee system or the guarantee system they do

participate in fails to ensure guarantees for funds at least in the scope and in the

amount stipulated in the BFG Act of 1994 (Article 2(3) of the BFG Act of 1994).

As of 30 September 2012, the membership included 619 domestic commercial

banks and cooperative banks. There are no foreign bank branch members

presently as all foreign bank branches operating in Poland are protected by their

home-country deposit insurance system. The list of entities (banks) covered by

the BFG’s guarantees is publicly available on the BFG’s website

41

http://www.bfg.pl/banki-objete-gwarancjami.

The following institutions are excluded from the BFG:

i) branches of credit institutions which, in accordance with the Directive

94/19/EC, are covered by the supervision and deposit guarantee system

of their home country; and

ii) credit unions, which are under supervision of the KNF. According to the

Regulation of the Minister of Finance of 22 October 2012 on acceptable

standards of risk with respect to the operation of credit unions, credit

unions are obliged to ensure the safety of funds held by members through

insurance of these funds.

There are presently plans to extend BFG membership to credit unions – a

legislative procedure was initiated in July 2012*. Currently, credit unions are

supervised by the KNF and depositors are protected through coverage limits and

the presence of a stabilization fund for use in the event of a failure. The value of

funds accumulated in credit unions amounts to approximately 1.9 percent of

deposits of the banking sector (as of 30 June 2012, source: www.skok.pl).

* The draft amending the Act on Credit Unions and other certain acts. Presently,

(as of the beginning of January 2013) the draft is still in the legislative process

and is in its first reading in Parliament.

Comments Although credit unions are not yet members of the BFG, their deposit protection

arrangements through the provision of credit union stabilization funds has been

effective at protecting their depositors to date.

The BFG should make preparations well in advance to facilitate the entry of

credit unions into the deposit insurance system (e.g. introduce necessary

regulatory changes, modify funding methodology and adjust fund targets if

necessary, and ensure the public is aware of the membership of credit unions in

the BFG and the terms and conditions of coverage).

EC 2. Policymakers determine whether eligible banks will be given membership as a

part of the licensing process or upon application to the deposit insurer.

Description Membership of domestic banks in the BFG is automatic once they obtain an

operating license from the KNF and with them being registered with the

National Court Register. In the case of branches of foreign banks covered by the

BFG, they must also receive an operating license (see Article 40 (1) and (2) of

the Banking Law).

Comments

EC 3. Criteria for membership that detail the conditions, process and time frame for

attaining membership are explicitly stated and transparent.

Description Membership criteria are defined in the BFG Act of 1994 (Article 2 (3)). The

participation in the BFG is compulsory for all domestic banks and branches of

42

foreign banks within the meaning of the Banking Act, provided that they do not

participate in a guarantee system or the guarantee system they do participate in

fails to ensure guarantees for funds at least in the scope and in the amount

stipulated in the BFG Act of 1994. The establishment of banks is subject to the

Banking Law (Chapter 2 of the Law in particular).

Comments

EC 4. If the deposit insurer does not control membership (i.e., cannot refuse

membership), the law or administrative procedures describe a clear time frame in

which the deposit insurer is consulted about or informed in advance of “newly

licensed” banks.

Description Information about the KNF licensing process is available publicly on the KNF

website in the form of official announcements. The BFG is informed in advance

about KNF decisions that have bearing on membership in the deposit insurance

system, pursuant to a cooperation and information sharing agreement between

the KNF and BFG.

Comments

EC 5. When deposit insurance membership is terminated by the deposit insurer,

arrangements are in place that provide for coordination in withdrawing the

bank’s operating license by the relevant authority. If relevant, an appropriate

general notice is given to depositors (e.g., on the deposit insurer’s website) to

inform them that any new deposits issued will not receive deposit protection.

Description Not applicable to the Polish deposit insurance system.

Comments

EC 6. All financial institutions accepting deposits are subject to strong prudential

regulation and supervision and are financially viable when they become

members of a deposit insurance system.

Description All deposit-taking financial institutions (banks as well as credit unions) are

subject to supervision by KNF and must meet the requirements stipulated in the

Banking Law, Act on Credit Unions, and Act on the Operation of Cooperative

Banks and their Associating Banks.

Comments

Principle 9. Coverage

Policymakers should define clearly in law, prudential regulations or by-laws

what is an insurable deposit. The level of coverage should be limited but

credible and be capable of being quickly determined. It should cover

adequately the large majority of depositors to meet the public policy objectives

of the system and be internally consistent with other deposit insurance system

design features.

Overall Compliant

43

Assessment

Comments Insured (guaranteed) deposits are clearly defined in law. Although coverage is

limited to an EU mandated EUR 100,000 per depositor per bank it is relatively

high (e.g., covering 99.6 percent of individual depositors and 59 percent of the

total value of deposits). Thus it is imperative that safety-net participants

maintain an effective supervisory and regulatory system and other measures to

mitigate moral hazard.

EC 1. Insured deposits are clearly and publicly defined. This comprises the level and

scope of coverage. If certain depositors are ineligible for deposit protection, the

criteria are clearly defined.

Description The scope and limit of coverage is clearly defined in law. The level of coverage

is limited to EU 100,000 per depositor per bank and in accordance with EC

Directive 94/19. In addition to the EUR 100,000 limit on the level of coverage,

the scope of coverage is restricted (e.g., depositors who are deemed professional

financial market participants, bank management as well as its

shareholders/stakeholders).

Comments

EC 2. The definition of “insured deposit” reflects the public policy objectives of

protecting depositors and promoting public confidence and financial stability

(e.g., protect small transaction accounts).

Description The definition of insured deposits is based on EC Directive 94/19 and reflects

the public policy objectives of protecting depositors and promoting financial

stability.

Comments

EC 3. The level of coverage is limited but credible (e.g., the level of coverage is high

enough to maintain confidence, but limited to maintain market discpline). The

level of coverage is consistent with the deposit insuer’s public policy objectives.

Description Based on the data provided by the BFG, the current limit covers 99.6 percent of

depositors and covers 59 percent of the total value of deposit liabilities. The

coverage limit was raised to EU 100,000 on December 3rd

2010 in accordance

with changes to the EC Directive.

Comments

EC 4. Depositors have sufficient information readily available to determine the amount

of coverage for their individual deposits.

Description The level of coverage is clearly described in both the website of the BFG, in

brochures, booklets and in information provided by banks.

Comments

44

EC 5. The coverage limit applies equally to all banks in a deposit insurance system.

Description There is only one coverage limit for all banks.

Comments

EC 6. The deposit insurance system does not incorporate co-insurance, where

depositors absorb some portion of the loss under the coverage limit in the event

of bank failure.11

Description Co-insurance is not part of the design features of the BFG.

Comments

EC 7. Deposit insurance coverage is reviewed periodically to ensure that it can meet

the public policy objectives of the deposit insurance system.

Description The scope and level of deposit guarantee defined in the BFG Act of 1994 are

subject to periodic review and possible amendments. The most important

amendments to the BFG Act of 1994, which included changes to the scope and

level of deposit guarantee coverage took place on the following dates:

­ 14 April 1997 (Journal of Laws No. 24, item 119),

­ 21 May 1999 (Journal of Laws No. 40, item 399),

­ 01 January 2000 (Journal of Laws No. 122, item 1316),

­ 01 May 2004 (Journal of Laws No. 91, item 870),

­ 03 November 2008 (Journal of Laws No. 196, item 1214),

­ 28 November 2008 (Journal of Laws No. 209, item 1315),

­ 13 December 2008 (Journal of Laws No. 209, item 1315),

­ 19 September 2009 (Journal of Laws No. 144, item 1176),

­ 30 December 2010 (Journal of Laws No. 257, item 1724).

Comments

AC 1. If set-off is utilized by the deposit insurance system, it is consistent with the

prevailing legal framework.

Description Set-off is not utilized in Poland.

Comments

11

Although the use of co-insurance can encourage depositors to monitor bank risk taking, it presents a number

of serious problems. In order to provide effective market discipline it assumes that depositors will have access

to the necessary financial information and that most retail/individual depositors can accurately assess risk. And,

even when depositors are in a position to make such determinations, co-insurance provides strong incentives for

depositors to run on a bank to avoid even a small loss of their funds. Nevertheless, there may be limited

exceptions where co-insurance may be appropriate (e.g., for use with certain investment products, for deposit

amounts above a very high threshold level).

45

AC 2. In the event of a merger of separate banks that are members of the deposit

insurance system, depositors of the merged banks enjoy separate coverage (up to

the maximum coverage limit) for each of the banks for a limited but publicly

stated period in which case the merging banks must be held responsible for

notification of affected depositors, including the date at which time the separate

coverage will expire.

Description In accordance with the Directive 94/19/EC on deposit guarantee systems, the

guarantee coverage limit per depositor per banking institution must be equal to

EUR 100,000, notwithstanding the fact that the said institution was established

recently as a result of a merger.

At an EU level, different regulation of this matter is currently being considered

with respect to bank mergers. If adopted, it would need to be reflected in

amendments to the BFG Act of 1994.

Comments

Principle

10.

Transitioning from a blanket guarantee to a limited coverage deposit

insurance system When a country decides to transition from a blanket guarantee to a limited

coverage deposit insurance system, or to change a given blanket guarantee, the

transition should be as rapid as a country’s circumstances permit.12

Blanket

guarantees can have a number of adverse effects if retained too long, notably

moral hazard. Policymakers should pay particular attention to public attitudes

and expectations during the transition period.

Overall

Assessment

N/A

Comments Not applicable to the Polish deposit insurance system.

EC 1. A situational analysis of the economic environment as it affects the banking

system is conducted before a country begins a transition from a blanket

guarantee to limited coverage.

Description

Comments

12

A “blanket guarantee” is a declaration by authorities that in addition to the protection provided by limited

coverage deposit insurance or other arrangements, certain deposits and perhaps other financial instruments will

be protected. A wide range of factors need to be considered when introducing blanket guarantees, including

decisions on the scope of the guarantee (e.g. the type of institutions, products and term maturities covered) and

whether the banks utilizing the guarantees will be required to contribute in some manner to the costs of

providing the guarantees.

46

EC 2. The situational analysis assesses structure and soundness of the banking system

including an evaluation of the condition of banks’ capital, liquidity, credit

quality, risk management policies and practices, and the extent of any problems;

and an evaluation of the number, type and characteristics of banks.

Description

Comments

EC 3. The situational analysis assesses the strength of prudential regulation and

supervision, the effectiveness of the legal framework, and the soundness of the

accounting and disclosure regimes.

Description

Comments N/A

EC 4. The pace of the transition to limited coverage is consistent with the state of the

banking industry, prudential regulation and supervision, legal framework and

accounting and disclosure regimes.

Description

Comments

EC 5. Policymakers are aware of the tradeoff between the length of time it takes for the

transition to the limited coverage system and the degree of moral hazard in the

system, and have planned the transition accordingly.

Description

Comments

EC 6. Policymakers are aware of and anticipate the reaction of the public to a reduction

in coverage levels. Policymakers develop effective communication strategies to

mitigate adverse public reaction to the transition.

Description

Comments

EC 7. Where there is a high level of capital mobility, and/or a regional integration

policy, the decision to lower coverage levels (and/or scope) considers the effects

of different countries’ protection levels and related policies.

Description

Comments

EC 8. The new limited-coverage deposit insurance system has access to adequate

funding during and after the transition. Policymakers consider the capacity of the

banking system to fund a limited-coverage deposit insurance scheme. If the

banking system is unable to fund the cost of the blanket guarantee, government

funding may be needed.

Description

Comments

47

Principle

11.

Funding

A deposit insurance system should have available all funding mechanisms

necessary to ensure the prompt reimbursement of depositors’ claims including a

means of obtaining supplementary back-up funding for liquidity purposes when

required. Primary responsibility for paying the cost of deposit insurance should

be borne by banks since they and their clients directly benefit from having an

effective deposit insurance system.

For deposit insurance systems (whether ex-ante, ex-post or hybrid) utilising

risk-adjusted differential premium systems, the criteria used in the risk-adjusted

differential premium system should be transparent to all participants. As well,

all necessary resources should be in place to administer the risk-adjusted

differential premium system appropriately.

Overall

Assessment

Compliant

Comments The BFG is well funded and has a wide variety of funding mechanisms

available, including access to supplementary back-up funding, to ensure the

prompt reimbursement of depositors claims. There are currently five funds in

place. A differential risk-adjusted premium system is also in use. The BFG

plans to continue building up its funding resources during the next few years to

deal with the implications of raising its coverage level to the EU mandated level

of EUR 100,000 in 2010. Although funding appears sufficient presently, plans

to introduce credit unions into BFG membership and the introduction of

additional resolution powers point to benefits in reassessing fund adequacy

going forward.

EC 1. Funding arrangements for the deposit insurance system are provided on an ex-

ante or an ex-post basis or some (hybrid) combination of these and are clearly

defined and established in law or regulation.

Description The BFG possesses the following financial sources for disbursement of

guaranteed funds:

Ex-post funds: the FPGA – the first disbursement of guaranteed funds come

from the FPGA of the bank, towards which the guarantee condition was

fulfilled; next, from the FPGA of other banks covered by the mandatory

deposit guarantee system (Article 25, 26, 26a of the BFG Act of 1994),

Ex-ante funds:

i) own funds of the BFG, designated to include funds recovered from bank

bankruptcy estates,

ii) own funds of the BFG, designated to include funds recovered from

annual premium contributions, reduced by the balance-sheet value of the

receivables financed by this fund (established in accordance with Article

13 of the BFG Act of 1994),

iii) other funds such as funds from grants and loans obtained from the state

budget; other own funds of the BFG (excluding: the fund for the

protection of guaranteed assets);

48

iv) own fund created to ensure the means to acquire tangible fixed assets;

funds from revaluation; non-approved profit from previous years; profit

for the financial year.

The BFG Act of 1994 also allows the Minister of Finance to increase the rate for

creating funds for the protection of guaranteed assets as well as the rate of the

annual contribution for the current year.

Comments The BFG has a wide range of funding sources and fund adequacy is high.

However, there are a large number of funds in existence. While this arrangement

is functional and no major problems have been encountered in the past, it is a

complex arrangement which could lead to confusion among depositors and

diseconomies of scale. Therefore, the BFG may wish to review the need for this

number of funds.

EC 2. Funding arrangements for the deposit insurance system ensure the prompt

reimbursement of depositors’ claims and include a pre-arranged and assured

source(s) of back-up funding for liquidity purposes. Such sources may include a

funding agreement with the central bank, a line of credit with the government

treasury, or another type of public fund or market borrowing. If market

borrowing is used by the deposit insurer it should not be the sole source of back-

up funding. The deposit insurer should not be overly dependent on a line of

credit from any single private source.

Description The supplementary sources of BFG funding are as follows:

i) funds from subsidies granted at the request of the BFG from the state budget

under conditions stipulated in the provisions on public finances (Article 15

(5) of the BFG Act of 1994),

ii) funds from short-term loans granted by the NBP in accordance with Article

15 (6) and 16 (3) of the BFG Act of 1994 and in accordance with Article 43

of the Act on the National Bank of Poland of 29 August 1997,

iii) loans granted from the state budget (Article 15 (6a) of the BFG Act of 1994

and Article 8 (2) (b) of the Budget Act for 2012). Note that the BFG’s

ability to obtain funding from external sources is not statutorily limited in

size.

In order to implement an institutional framework to improve obtaining short-

term loans from the NBP, the BFG entered into an agreement with the NBP

entitled: The Agreement on the establishment of general conditions under which

the National Bank of Poland will provide the Bank Guarantee Fund with short-

term loans for the disbursement of guaranteed funds.

The BFG also entered into an agreement with several banks on carrying out

transactions with debt securities on the secondary market. These transactions

also contain sell-buy back transactions.

Comments

49

EC 3. Primary responsibility for funding the deposit insurance system is borne by

member banks and is enforceable by the deposit insurer.

Description The disbursement of guaranteed funds is financed by banks covered by the BFG

either through the ex-ante collection of premiums or by the use of ex-post

provisions.

The first and primary source of financing reimbursements is the guaranteed

funds held by banks in the form of the fund for the protection of guaranteed

assets (FPGA). The payments from FPGA are made after BFG’s notification to

banks in accordance with Article 26l of the BFG Act of 1994.

Next, the reimbursement of guaranteed funds are financed from the following ex

ante funds, held by the banks themselves:

i) an own fund of the BFG designated to include funds recovered from

bank bankruptcy estates,

ii) an own fund of the BFG (called the assistance fund), designated to

include funds recovered from annual contributions, reduced by the

balance-sheet value of the receivables financed by this fund

(established in accordance with Article 13 of the BFG Act of 1994,

this fund is created from banks’ annual contributions).

In the history of the disbursement of guaranteed funds (encompassing depositors

of 94 banks) the costs of disbursement were born only by banks as other sources

of financing for payouts were not used.

Comments

EC 4. If an ex-ante deposit insurance fund is established the size of the fund (e.g., the

fund reserve ratio) is defined on the basis of clear, consistent and well-developed

criteria that aim at meeting the public policy objectives. If an ex-post funding

arrangement is used the main source of funding is credible and readily available.

Description The BFG possesses adequate financial resources which allow it to meet its

public policy objectives and reimburse insured depositors promptly.

The system is financed from both ex-ante and ex-post funds. As of September

2012, the financial resources at BFG’s disposal amounted to PLN 13,799 million

(EUR 3,354 million) in total, including ex-ante funds in the amount of PLN

9,090 million (EUR 2,210 million) and ex-post funds in the amount of PLN

4,709 million (EUR 1,145 million). The total amount of funds at BFG’s disposal

(including ex ante funds) has been increasing steadily. The BFG objective is to

increase its ex-ante coverage ratio for guaranteed (i.e. insured) deposits from

1.87 percent presently to 2.72 percent. This would allow the payment of the

guaranteed deposits of up to the 10th

largest bank.

In the event of making a deposit guarantee disbursement, ex-post funds are used

first and when they become exhausted, the BFG utilizes ex-ante funds and

financial resources from other sources (inter alia from a short-term loan from

50

NBP and a loan from the state budget - there is no legally determined limit on

the funds available to the BFG).

Ex-post funds are accumulated by banks in the form of a fund for the protection

of guaranteed assets (FPGA). The value of funds created by banks within the

FPGA are reported to the BFG on the basis of the Regulation no. 7/2011 of the

President of the NBP. As a consequence, the BFG has access to high-quality

data concerning ex post funds and monitors their levels. According to Article 26

of the BFG Act of 1994, assets covering the FPGA can only be invested in

treasury securities, NBP money bills and bonds, as well as in money market fund

units; and in the case of cooperative banks, they must be placed on a separate

account in an associating bank. These funds are accessible by the BFG on

demand and are invested in safe and liquid assets.

Ex-ante funds are maintained directly by the BFG. These funds are raised by

obligatory yearly contributions paid by the banks, as well as the contribution of

BFG net profits. Assets covering ex ante funds are invested only in safe and

liquid securities.

The highest historical level of protection for guaranteed deposits took place in

the year 2007. At that time the financial resources at the BFG’s disposal were

sufficient to fully secure the payout of insured deposits in the 10th largest bank

in Poland in terms of the total amount of guaranteed deposits. Coverage of

guaranteed deposits with ex ante funds amounted to 2.72 percent. The

introduction of higher mandated EU coverage limits (EUR 100,000) in 2010

contributed to a lowering of the coverage ratio. As of 30 September 2012, ex-

ante funds were sufficient to fully secure the payout of guaranteed deposits in

the 12th biggest bank in terms of the total amount of guaranteed deposits. The

index of ex ante coverage was at the level of 1.87 percent.

The following two charts illustrate the BFG ex-ante fund coverage of the

guaranteed deposits of individual banks in the event of failure as of December

31st, 2007 and September 30

th, 2012.

51

The BFG’s funding goal is to steadily increase its coverage capacity for its ex

ante funds and to rebuild capacity to fully cover the payout of guaranteed

deposits up to the 10th largest bank in terms of the total amount of guaranteed

deposits. An additional target is to reach by 2020 the EC recommended target

ratio of 1.5 per cent of eligible deposits.13

The collected ex ante funds are sufficient to carry out assistance and

restructuring activities for not only small and medium-sized banks, but also large

systemically important banks. Although not a preferred resolution option, the ex-

ante funds at BFG’s disposal are sufficient to recapitalize all banks with the use

of financial resources up to 50 per cent of the capital of a supported bank or to

recapitalize the 3rd biggest and every smaller bank with the use of financial

resources up to 100 per cent of the capital of the supported bank.

13

Note that the EC recommended target ratio of 1.5 percent refers to eligible deposits and not guaranteed

(insured) covered deposits. Eligible deposits refer to those deposits which are eligible for coverage, all of

which will not necessarily be covered in the event of a failure.

As of December 31, 2007 As of September 30, 2012

0 5 10 15 20 25 30 35 40 45 50 55 60

Bank 1

Bank 2

Bank 3

Bank 4

Bank 5

Bank 6

Bank 7

Bank 8

Bank 9

Bank 10

Bank 11

Bank 12

Bank 13

Bank 14

Bank 15

Bank 16

Bank 17

Bank 18

Bank 19

Bank 20

Bank 21

Bank 22in billion PLN

1

2

3

4

8

7

6

5

9

10

ex ante funds

0 10 20 30 40 50 60 70 80 90 100 110

Bank 1

Bank 2

Bank 3

Bank 4

Bank 5

Bank 6

Bank 7

Bank 8

Bank 9

Bank 10

Bank 11

Bank 12

Bank 13

Bank 14

Bank 15

Bank 16

Bank 17

Bank 18

Bank 19

Bank 20

Bank 21

Bank 22in billion PLN

1

2

3

4

8

7

6

5

9

10

ex ante funds

11

12

52

The total financial resources at the BFG’s disposal (both ex-ante and ex-post) are

sufficient to fully secure the payout of guaranteed deposits in the 10th largest

bank in terms of the total amount of guaranteed deposits. Despite a reduction in

insuring capacity measured as above (compared to the end of 2007), the BFG’s

financial resources are relatively high compared to most other deposit insurers

around the world.

Comments

Funds commitment

in the amount of 50% of the bank's capital

Funds commitment

in the amount of 100% of the bank's capital

0 2 4 6 8 10

Bank 1

Bank 2

Bank 3

Bank 4

Bank 5

Bank 6

Bank 7

Bank 8

Bank 9

Bank 10

Bank 11

Bank 12

Bank 13

Bank 14

Bank 15 in billion PLN

1

ex ante funds

0 5 10 15 20

Bank 1

Bank 2

Bank 3

Bank 4

Bank 5

Bank 6

Bank 7

Bank 8

Bank 9

Bank 10

Bank 11

Bank 12

Bank 13

Bank 14

Bank 15 in billion PLN

1

2

3

ex ante funds

55,3%

94,9%

As of December 31, 2007 As of September 30, 2012

0 5 10 15 20 25 30 35 40 45 50 55 60

Bank 1

Bank 2

Bank 3

Bank 4

Bank 5

Bank 6

Bank 7

Bank 8

Bank 9

Bank 10

Bank 11

Bank 12

Bank 13

Bank 14

Bank 15

Bank 16

Bank 17

Bank 18

Bank 19

Bank 20

Bank 21

Bank 22in billion PLN

1

2

3

4

8

7

6

5

9

ex ante funds + ex post funds

0 10 20 30 40 50 60 70 80 90 100 110

Bank 1

Bank 2

Bank 3

Bank 4

Bank 5

Bank 6

Bank 7

Bank 8

Bank 9

Bank 10

Bank 11

Bank 12

Bank 13

Bank 14

Bank 15

Bank 16

Bank 17

Bank 18

Bank 19

Bank 20

Bank 21

Bank 22in billion PLN

1

2

3

4

8

7

6

5

9

10

ex ante funds + ex post funds

53

EC 5. The deposit insurance fund has sound investment policies and procedures,

internal controls and disclosure and reporting systems. These are approved by

the deposit insurer’s governing body and subjected to regular review by an

independent party. Investment policies emphasise the need to ensure the

preservation of fund capital and liquidity.

Description The BFG may only invest in securities issued or guaranteed by the Treasury or

the NBP, as well as in money market fund units. The BFG’s resources are

accumulated in current accounts, dedicated accounts and overnight deposit

accounts and other term deposit accounts with the NBP. The BFG may also keep

accounts with the National Depository for Securities plc. The rules of investing

and liquidity management are specified in internal procedures approved by the

BFG Management Board.

The BFG’s investment policy determines the long-term investment objectives as

well as investing activities for the coming year. Within the framework of that

policy, the BFG Management Board establishes a minimum level of portfolio of

financial instruments with short term maturities (up to 1 year). The BFG’s

investment policy is communicated to the BFG Council.

The investment policy is focused on the safety and liquidity of the securities

portfolio and financial liquidity of the BFG. Once these criteria are fulfilled,

focus is placed on the optimizing returns.

In line with the principles of the investment policy, the portfolio is created

according to the following criteria:

I. providing financing for basic operational goals:

a) this criterion refers to ensuring financial resources for the BFG’s day-to-

day operating activities, including maintenance of the BFG Office,

b) this financing should be assured with the use of securities with an initial

maturity no longer than 1 year – Treasury bills and NBP bills;

II. providing financial resources for deposit guarantee payout and for assistance

to a medium-sized bank;

The portfolio of securities should possess a maturity structure which ensures

that the yearly volume of maturing bonds is no lower than PLN 1,000

million and no lower than PLN 3,500 million if the maturity range of the

portfolio materially is up to 3 years. Bonds with a maturity of up to 3 years

are highly liquid securities, which ensures their immediate cashing. In

addition, they are characterized by a limited level of interest rate risk. The

possibility of cashing in such bonds exceeding the amount of PLN 3,500

million significantly mitigates this risk, including the risk of loss in the event

of a “fire sale”. Fulfillment of this criterion enables the following:

c) the performance of a payout of guaranteed deposits up to approximately

PLN 6,050 million (which represents over 40 per cent of the financial

54

resources at the disposal of the BFG) with the use of the FPGS and funds

from the sale of securities with a maturity of up to 1 year;

d) the performance of a payout of guaranteed deposits up to approximately

PLN 8,550 million (which represents over 60 per cent of financial

resources at the disposal of the BFG) with the use of the FPGS and funds

from the sale of securities with a maturity of up to 3 years.

Additionally, the above investment model is enhanced by the inflow of financial

resources on the basis of a compulsory annual banking fee at the level of PLN

1,000 million. In case of more extensive payouts, interest rate risk is limited,

owing to the possibility of obtaining secured loans at NBP and other banks;

III. optimization of bond portfolio profitability;

It is assumed that, depending on the level of macroeconomic risk, duration

reflecting portfolio risk is the main criterion for optimizing bond portfolio

profitability. At the end of 2012, the profitability of the BFG securities portfolio

was significantly higher than market profitability. The BFG’s portfolio of bonds

consists of only securities issued by the State Treasury. Purchases of bonds are

executed in a way in which maturities in respective years are relatively even.

Such a principle guarantees high liquidity of the portfolio, which is necessary

especially when a prompt reimbursement of guaranteed deposits is needed.

Comments

EC 6. For deposit insurers that use risk-adjusted differential premium systems:

(a) the system for calculating premiums is transparent to all participants;

(b) the ratings and rankings resulting from the system pertaining to

individual member banks are kept confidential; and

(c) policymakers ensure that the deposit insurer has the necessary

authority, resources and information in place to carry out its

responsibilities with regard to the operation of such systems.

Description The size of the premium is calculated as a product of the multiplication of a per

cent rate fixed by the BFG Council for each year and 12.5 times the sum of the

risk weighted total capital requirement and the total capital requirement

connected with exceeding the limits and violation of other norms stipulated in

the Banking Act.

55

The differential premium system is transparent. The calculation of the total

capital requirement as a risk measure is based on publicly disclosed criteria. The

level of the TCR is calculated by banks according to Resolution No.76/2010 of

the KNF as of 10 March 2010. It is verified by an auditor. The BFG, on the basis

of an agreement concluded with the NBP, receives all financial reporting of

banks, including data concerning the TCR.

Comments

EC 7. In so far as the funds of the deposit insurer may be used by other members of the

safety net for the purposes of depositor protection and/or bank resolution, those

circumstances are clearly stated and public and known to member banks. The

deposit insurer has adequate information to:

(a) understand the use of the funds;

(b) seek reimbursement for the estate of the failed bank or participate in

recoveries from the bank; and

(c) restrict the resolution or depositor reimbursement amount to the costs

the deposit insurer would otherwise have incurred without such

intervention or resolution.

Description Presently not applicable to the deposit insurance system in Poland.

Comments

Deviation of the quotient "annual levy collected in 2012 / guaranteed deposits as of 31 December 2011"

for a particular bank from the average for the banking sector

Commercial banks (with guaranteed deposits exceeding 1 billion PLN) Co-operative banks

0% 50% 100% 150%

Bank 1

Bank 574

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. 419%

386%

325%

231%

221%

216%

193%

173%

170%

132%

131%

116%

111%

101%

93%

91%

89%

86%

85%

81%

74%

74%

61%

56%

43%

38%

0% 100% 200% 300% 400% 500%

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

Bank

56

Principle

12.

Public awareness

In order for a deposit insurance system to be effective it is essential that the

public be informed on an ongoing basis about the benefits and limitations of the

deposit insurance system.

Overall

Assessment

Compliant

Comments The BFG undertakes a range of good practices to promote public awareness on

an ongoing basis about deposit insurance. The public awareness program is

evaluated on a regular basis for effectiveness and a contingency planning

program has been introduced.

EC 1. The deposit insurer is responsible for promoting public awareness of the deposit

insurance system and how the system works, including its benefits and

limitations, on an on-going basis.

Description The BFG as well as banks participating in the deposit guarantee system in

Poland conduct (in accordance with the obligations imposed on them by the

BFG Act of 1994) information and promotion actions of the deposit guarantee

system.

Information and promotion actions performed by the BFG are mainly on an on-

going basis and include:

i) a BFG website, in which detailed information on the deposit guarantee

system and the BFG are posted,

ii) a call center,

iii) brochures, for clients of banks, which are mainly distributed by the banks

(displayed in bank branches) with leaflet inserts in countrywide newspapers,

iv) the provision of “notice boards” to banks, confirming that a bank in which a

sign is placed, is covered by the Polish deposit guarantee system,

v) running articles in daily newspapers on deposits guarantees, and

vi) interviews in the mass media as well as public appearances of BFG

representatives.

Currently, the BFG participates in a project of the NBP titled: “Academy

Finances Available”, aiming to promote financial inclusion to popularize non-

cash transactions in Poland. At banks’ websites customers can also find direct

links to the BFG’s website which contain all relevant information on the deposit

guarantee system.

Comments

EC 2. The objectives of the public awareness programme are clearly defined and

consistent with the public policy objectives and mandate of the deposit insurance

system.

Description A formal document has been drawn up and adopted in the BFG, titled “Public

Awareness and Education Policy of the Bank Guarantee Fund”. On an annual

57

basis public awareness objectives are specified in the Corporate Plan (the

activity plan).

Comments

EC 3. The public awareness contingency programme conveys information about the

following:

(a) which financial instruments are covered by deposit insurance and which

are not (e.g., whether the system covers foreign deposits);

(b) which financial institutions offer insured deposits and how they can be

identified;

(c) deposit insurance coverage limits and the potential for losses on deposits

in excess of those limits; and

(d) the reimbursement process – how, when and where depositors may file

claims and receive reimbursements in the event of a bank failure.

Description Information on membership, coverage terms and limits and reimbursement

processes is provided by the BFG and transferred to bank customers by banks,

pursuant to the Article 38b (1) (2) and 38b (2) (3) of the BFG Act of 1994, and it

is made public by:

i) the BFG website,

ii) a call center,

iii) brochures and leaflet inserts,

iv) articles in daily newspapers (e.g., press inserts), mass media interviews

(radio and TV) and public appearances.

The list of all banks covered by the BFG’s guarantees is available on the

websites: http://www.BFG.pl/banki-objete-gwarancjami and

http://www.BFG.pl/en/banks-covered-with-the-guarantee

In addition to the above measures, special provisions have been made with the

internal call centre and the BFG website in the event of a failure A special BFG

website section has been designed for affected depositors to expedite the

reimbursement process. Information is also provided to depositors with respect

to coverage limits associated with foreign bank branches covered by EU home

country deposit guarantee schemes operating in Poland.

Comments

EC 4. There is an effective contingency planning process for public awareness and

communications that addresses plausible future scenarios and that involves the

cooperation and coordination of other safety-net participants as appropriate.

Description The BFG has prepared a scenario on the announcement for bank clients as well

as a BFG website design in the event of a bank failure for contingency planning

purposes. Moreover, additional contingency planning is undertaken among all

safety net participants through the FSC and includes consideration of public

58

awareness planning for both normal failures and in systemic circumstances.

Comments

EC 5. The deposit insurer works closely with member banks and other safety-net

participants to ensure consistency in the information provided and to maximise

awareness on an ongoing basis.

Description The BFG works closely with its member banks and others to ensure consistency

in the information provided to maximize awareness. This includes the

preparation and distribution of BFG brochures which are distributed through

branches, notice boards and web site postings by banks. Cooperation with other

financial safety-net participants takes place primarily through the FSC. The

BFG is one of the co-organizers of a social media campaign called “Don’t let

yourself be cheated. Check before you sign.” The goal of the campaign is to

underline the risks associated with entering into agreements with entities

offering “fast” loans which are not the subject to KNF supervision.

Comments

EC 6. The deposit insurer receives or conducts a regular evaluation of the effectiveness

of its public awareness program or activities.

Comments

Description Every two years, on average, the BFG in conjunction with the PBA conducts

public opinion polls through an independent agency to evaluate public awareness

levels. Public awareness of deposit insurance (unprompted) among the general

public is relatively low (e.g., 31 percent in 2012) despite the efforts of the BFG

public awareness program. In part this represents the high proportion of

consumers who are “unbanked”. Awareness of deposit insurance with

individuals who have a bank account is around 58 percent. A key objective of

the BFG is to raise awareness levels to 40 percent among the general public by

2015. Work is also underway between the BFG, NBP and PBA to enhance

financial inclusion in Poland.

AC 1. The public awareness programme is tailored to the needs of clearly defined

target audiences and utilises a variety of communication tools. The desired level

of visibility and awareness among the target audiences is a primary factor in

determining the budget for the public awareness programme.

Description In its information and promotion activities the BFG endeavours to choose

appropriate tools and measures for target marketing. A number of target

audiences are addressed such as expert bank clients – who search for information

on their own – and in other cases those that use tabloid newspapers. Seminars

are also conducted for students.

Comments

Principle Legal Protection

The deposit insurer and individuals working for the deposit insurer should be

59

13. protected against lawsuits for their decisions and actions taken in “good faith”

while discharging their mandates. However, individuals must be required to

follow appropriate conflict-of-interest rules and codes of conduct to ensure

they remain accountable. Legal protection should be defined in legislation and

administrative procedures, and under appropriate circumstances, cover legal

costs for those indemnified.

Overall

Assessment

Largely Compliant

Comments The BFG and individuals working for it are protected against lawsuits for their

decisions and actions taken in “good faith” while discharging their mandates.

Legal protection is defined in legislation and administrative procedures, and

under appropriate circumstances, legal costs for those accused are covered.

Although the BFG Council and Management Board members are required to

follow appropriate conflict-of-interest rules and codes of conduct (particularly

with respect to outside employment), there are some gaps. For example, there

are no specific statutory prohibitions or restrictions regarding employment or

performance of tasks in member institutions by other BFG employees. Affected

employees are merely required to disclose information to their employer in this

respect.

EC 1. The deposit insurer and individuals working for the deposit insurer are protected

against lawsuits for their decisions and actions taken in “good faith” while

discharging their mandates.

Description In accordance with Article 22 (6) and (7) of the BFG Act of 1994:

i) the BFG shall not be liable for the disbursement of the guaranteed funds

to unauthorised persons nor for the disbursement of the guaranteed funds

in an improper amount, performed according to the depositors list as well

as for failing to disburse funds to an authorised person as a result of said

person being undisclosed in the list, and

ii) the BFG Management Board members, acting with due diligence, shall

not be liable for damage resulting from the improper disbursement of

guaranteed funds (in the regulations, there is no such protection in direct

relation to the other employees of BFG, but it should be noted that the

subject of claims with respect to the activities of employees (as well as

consultants/contractors) of the BFG Office would be BFG itself (on

whose behalf they act); also with regard to the provisions of the Act of

the Labour Code, employees’ responsibilities are limited).

The BFG does not bear liability for failing to disburse the guaranteed funds

within the time limit specified in this Act, if it was caused by a force majeure

event (Article 22 (8) of the BFG Act of 1994).

Specific limitations of liability provided by Article 22 (7) of the BFG Act of

1994 concerns only members of the BFG Management Board, not another staff

60

of BFG. Employees of BFG are protected extensively by the General Labour

Code rules. Legal protection is extended to former/retired employees.

Comments

EC 2. Individuals are required to follow appropriate conflict-of-interest rules and codes

of conduct to ensure they remain accountable.

Description Persons performing functions in the governing bodies of the BFG (the Council

and the Management Board) cannot perform functions in the governing bodies

of or be employed by banks (Article 5 of the BFG Act of 1994). There are no

such requirements in relation to the employees of the BFG other than to disclose

information to their employer in this respect.

Regulations concerning codes of conduct are included in the Resolution of the

President of the BFG Management Board on the implementation of the Working

Rules of the Bank Guarantee Fund, which provides that an employee of BFG is

required to maintain the confidentiality of information, the disclosure of which

could expose the BFG to deleterious consequences, and legally protected

information in the generally applicable law and internal regulations (e.g.,

constituting personal data, bank secrecy, etc.).

Comments There are no specific statutory prohibitions or restrictions regarding employment

or performance of tasks in member institutions by BFG employees (other than

BFG Council and Management Board), and there are no such prohibitions in

BFG’s internal regulations. Employees are merely required to disclose

information to their employer in this respect.

EC 3. Legal protection is defined in legislation and administrative procedures, and

under appropriate circumstances, cover legal costs for those indemnified.

Description Legal protection, as described in EC1, is defined in the BFG Act. The Act itself

contains no provisions referring to covering the legal costs incurred in

connection with legal protection. However, according to the Labour Code, only

the employer can be sued when his/her employee has caused damage to a third

person in due course of the discharge of their professional duties. An employee

is liable only to his or her employer when said employer has made reparations,

and liability is limited according to Labour Code rules. In the case of those

working on behalf of the deposit insurer any legal costs would be covered by the

BFG.

Comments

AC 1. Legal protections do not prevent depositors or other individual claimants, or

member banks from making legitimate challenges to the acts or omissions of the

deposit insurer in public or administrative review (e.g. civil action) procedures.

Description The BFG as a legal entity has full judicial capacity, which means that it can sue

and be sued.

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Comments

Principle

14.

Dealing with parties at fault in a bank failure

A deposit insurer, or other relevant authority, should be provided with the power

to seek legal redress against those parties at fault in a bank failure.

Overall

Assessment

Compliant

Comments The relevant authorities (i.e., KNF and the public prosecutor) are provided with

appropriate powers to seek legal redress against those parties at fault in a bank

failure.

EC 1. The conduct of parties responsible for or who contributed to the failure of a

bank (e.g., officers, directors, managers, auditors, asset appraisers and related

parties of the failed bank) are subject to investigation by the deposit insurer or

other relevant national authority. The investigation of the conduct of such

parties may be carried out by one or more of the following: the deposit insurer,

supervisor or regulatory authority, criminal or investigative authorities, or a

professional or disciplinary body, as applicable.

Description The BFG is not an authority responsible for carrying out investigations and

criminal proceedings against persons who contributed to the failure of the bank.

The Polish legal system requires those who are aware of a criminal offence to

notify the public prosecutor or police about their suspicion of the criminal

offence committed ex officio (Article 304 § 1 of the Criminal Proceedings Code

of 6 June 1997). Ex officio prosecuted criminal offences are the destruction of

property, damage of property, illegal hiding or removing of documents, and

misappropriation.

Apart from the public prosecutor and police, who are responsible for

investigating criminal offences (prosecuted ex officio) and those prosecuted at

request, including those concerning financial institutions, important

investigating powers belong to the Chairman of the KNF in connection with his

supervisory powers over financial institutions(Article 6 of the Act on Financial

Market Supervision). These include:

i) in civil-law cases arising from the relationships entered into in

connection with participation in trading on the financial market, or

relating to entities operating on this market, the KNF Chairperson shall

have the powers of a prosecutor ensuing from the provisions of the Code

of Civil Procedure of 17 November 1964;

ii) in cases relating to the offences specified in particular in the Banking

Law, the Electronic Payment Instruments Act of 12 September 2002 or

any acts aimed against the interests of the market participants,

committed in connection with the activities of the entities operating on

that market, the KNF Chairperson, upon his (her) petition, shall be

vested with an injured party's rights in criminal proceedings;

The issue of the responsibility of persons managing a bank (criminal and civil

liability, administrative and disciplinary) is regulated in the following legal

62

acts:

i) the Banking Law (for example Article 138 (3) - (5) and Chapter 13);

ii) the Commercial Companies Code (concerning banks in form of public

corporation, Article 479 - 490, 586 - 595);

iii) the Cooperative Law (concerning cooperative banks, Part II A);

iv) the Bankruptcy and Reorganisation Law (Part V, e.g. Article 522);

v) the Tax Ordinance (in a scope of tax liability, e.g. Article 116 - 116a),

and the Accounting Act and the National Court Register Act.

Comments

EC 2. If identified as culpable for the failure of a bank, such parties are subject to

sanction and/or redress. Sanction or redress may include personal or

professional disciplinary measures (including fines or penalties), criminal

prosecution, and civil proceedings for damages.

Description The failure of a bank, as such is not an offence. But it may be caused by

unlawful actions by parties at fault. Depending on the type of action, laws and

regulations provide the following types of punishment of persons managing a

bank:

i) criminal liability, e.g., imprisonment, restriction of liberty, fee,

obligation to repair damage, ban from managing position,

ii) civil liability, e.g., compensation, court invalidation of civil actions,

administrative liability, for example suspension of managing powers or

removal of management board members.

Comments

Principle 15. Early detection and timely intervention and resolution

The deposit insurer should be part of a framework within the financial system

safety net that provides for the early detection and timely intervention and

resolution of troubled banks. The determination and recognition of when a

bank is or is expected to be in serious financial difficulty should be made

early and on the basis of well-defined criteria by safety-net participants with

the operational independence and power to act.

Overall

Assessment

Largely Compliant

Comments The BFG is well integrated into the early detection and intervention framework

for troubled banks and plays an important role in providing early warning risk

assessment. However, certain deficiencies exist in the supervisory/regulatory

framework (e.g., corrective actions and on-site supervision) which hamper

effectiveness in achieving full compliance.

EC 1. The deposit insurer is part of a framework within the financial system safety net

that provides for the early detection and timely intervention and resolution of

troubled banks (failure resolution framework).

Description In general, most of the responsibilities covered in EC 1 are conducted by the

KNF. However, the BFG plays a role in the early detection of risks in the

banking sector through the process of collecting and analysing information on its

63

member banks and through the use of its EWS.

The EWS identifies significant risks in the banking sector and can also be used

for individual bank risk assessment. Results from the EWS are presented at FSC

meetings. As indicated earlier, legislation being developed would see the

President of the Management Board of the BFG become a full member of the

FSC following the presentation to Parliament, debate and final approval.

Pursuant to Article 17 of the Act on Financial Market Supervision, the

Chairperson of KNF and the President of the NBP shall exchange information to

the extent necessary for the performance of their statutorily defined

responsibilities. On this basis the BFG shares information and provides the KNF

with information such as member bank requests for assistance from the BFG

assistance fund, copies of post-audit statements addressed to banks using

financial assistance (including audit results and recommendations), and the

ratings awarded to individual banks by KNF at the end of the year.

Comments

EC 2. The failure resolution framework is established by law or regulation, and is

effective at the early detection and timely intervention and resolution of

troubled banks. The failure resolution framework is insulated against legal

actions that aim at the reversal of early and timely decisions related to

corrective procedures, interventions and resolutions of troubled banks.

Description The supervisory powers of KNF to verify the financial condition of banks and

apply early intervention measures are stipulated in Chapters 11 and 12 of the

Banking Act. The KNF is provided with the following powers (Article 11 (2) of

the Banking Act):

i) assessing financial condition,

ii) authorising and consenting to actions,

iii) ordering a bank to amend or terminate an agreement,

iv) prohibiting a bank from exercising voting rights on shares of a

domestic bank and from exercising powers of a parent undertaking,

v) ordering the sales of shares by a specified date,

vi) refusing to send notification to the competent supervisory

authorities of a host Member State,

vii) refusing to notify the competent supervisory authorities of a host

Member State,

viii) prohibiting a financial institution from carrying out business

activity in a host Member State,

ix) ordering a bank to cease payouts from net earnings,

x) ordering a bank, a branch of a foreign bank or a branch of a credit

institution to refrain from opening new offices,

xi) suspending members of the management board of a bank or

financial institution from office,

xii) restricting the scope of activity of a bank, branch of a foreign bank

or branch of a credit institution,

64

xiii) imposing a financial penalty on a bank, branch of a foreign bank,

branch of a credit institution or on a financial institution,

xiv) liquidating a bank or branch of a foreign bank,

xv) setting the scope of powers of a liquidator or another person

appointed by the competent supervisory authorities of a Member

State to put a credit institution into liquidation,

xvi) dismissing a member of the management board of a bank,

xvii) imposing a financial penalty on members of the management board

of a bank or financial institution or the management of a branch of a

credit institution,

xviii) prohibiting or restricting the extension of loans and cash advances

to the bank’s shareholders (members), members of the management

and supervisory boards, and staff,

xix) requesting to call an extraordinary general meeting,

xx) obliging the bank to increase its own funds, as stipulated by Article

138a and 138b (1) of the Banking Law,

xxi) imposing on a bank an additional capital requirement,

xxii) appointing or dismissing a trustee,

xxiii) establishing a receivership,

xxiv) taking over a bank by another bank, with the consent of the

acquiring bank,

xxv) applying to the Council of Ministers for putting a state bank into

liquidation,

xxvi) dismissing a liquidator of a bank appointed by the bank,

xxvii) suspending a bank’s activity, and

xxviii) recognizing a branch of credit institution to be relevant.

Decisions of the KNF where conditions referred to in Article 158 (1) and (2) of

the Banking Act are met are:

i) the suspension of a bank's operations, appointment of an administrator if

it is not appointed earlier and thereupon a decision on its takeover by

another bank, with the consent of the acquiring bank, and

ii) on suspension of a bank's operations, appointment of an administrator if

it is not appointed earlier and petition to the competent court for a

declaration of bankruptcy, and are not subject to appeal.

Comments There are a number of areas identified in BCP assessments that need to be

addressed in the supervisory framework such as deficiencies in the powers of the

KNF to issue binding resolutions and the need to enhance the intensity of on-site

supervision. Credit and lending policies also need to be tightened, and the KNF

should ensure bank board oversight and risk management are effective.

Monitoring of loan restructuring should be strengthened and accounting

practices for impaired loans improved.

EC 3. The safety-net participants have the operational independence and power to

perform their respective roles in the failure resolution framework and a clearly

defined early intervention mechanism exists (including resolution tools) to

ensure that appropriate action is taken (to allow the orderly resolution of a

65

troubled bank) by the responsible party without delay.

Description Chapter 12 of the Banking Act (Bank reorganisation proceedings, liquidations

and bankruptcies) stipulates the KNF is the sole authority which can take the

following decisions:

i) that a bank has suffered a net loss, is threatened with such a loss or in

danger of insolvency or liquidity,

ii) that a programme of reorganisation proceedings is inadequate or the

implementation thereof is deficient,

iii) that a bank failed to submit a reorganisation programme as stipulated in

Article 142 (1) or if the performance of that programme proves

ineffective,

iv) that if after 6 months following the date of an extraordinary general

meeting of shareholders convened in accordance with the procedure

specified in Article 143 (1) (3), the losses incurred by the bank exceed

half of its own funds,

v) that a bank’s assets are not sufficient to cover its liabilities,

vi) that a bank is unable to pay its obligations to the depositors resulting

from guaranteed funds because of its financial situation.

The BFG is also autonomous in the execution of its tasks related to financial

assistance for the banks. Terms of the assistance are stipulated by Article 19 and

20 of the BFG Act.

With respect to the scope of the resolution framework, significant gaps are

present in Poland with respect to the scope of intervention measures by the KNF

and is being addressed by through the development of draft legislation for an

enhanced resolution regime.

Comments See response to EC2.

EC 4. The failure resolution framework includes a set of criteria that are used to

identify banks that are or are expected to be in serious financial difficulty and are

used as a basis to initiate some form of early intervention or corrective action to

reduce the likelihood that a resolution would be necessary. Such action should

minimise losses to the deposit insurance fund.

(a) The criteria are clearly defined in law or regulation and are well understood

by banks and their stakeholders; and

(b) The criteria will be country specific and may reflect concerns about a

bank’s capital, liquidity, and asset quality, among other factors.

Description A variety of early warning and intervention tools are utilized. The KNF utilizes a

Supervisory Review and Evaluation Process (SREP) which identifies bank risks

and classifies banks into risk categories based on various criteria and, in

66

particular, categories for high risk banks. This system is complemented by the

BFG EWS and is used to apply graduated intervention measures for troubled

banks. The KNF is in the process of updating the system to facillitate better

integration with the intervention and resolution framework. In addition to the

BION process, criteria for intervention are specified in the Banking Act in

Chapter 12 (Bank reorganisation proceedings, liquidations and bankruptcies).

They are listed in EC3. The KNF, according to the Banking Act, issues

additional rules for banks among others on liquidity, solvency, large exposures

limits, etc. Some examples of the rules:

i) Resolution No. 173/2012 of the Polish Financial Supervision Authority

of 19 June 2012 amending the resolution on the detailed rules and

conditions for taking account of exposure when determining compliance

with the limit of exposure concentration and the limit of large exposures,

and amending the resolution on the requirements for identifying,

monitoring and controlling exposure concentrations, including large

exposures;

ii) Resolution No. 172/2012 of the Polish Financial Supervision Authority

of 19 June 2012 amending the resolution on the scope and detailed rules

for determining capital requirements for particular types of risk;

iii) Resolution No. 325/2011 of the Polish Financial Supervision Authority

of 20 December 2011 on other deductions from own funds, their amount,

their scope and conditions of their deduction from a bank's own funds,

other balance sheet items included in supplementary capital, their

amount, their scope and the conditions of their inclusion in

supplementary capital, deductions from supplementary capital, their

amount, their scope and conditions of their deduction from

supplementary capital and the scope and manner of treating the activity

of banks that are members of conglomerates in calculating own funds;

iv) Resolution No. 324/2011 of the Polish Financial Supervision Authority

of 20 December 2011 amending the Resolution No. 76/2010 of the

Polish Financial Supervision Authority on the scope and detailed

procedures for determining capital requirements for particular risks and

the Resolution on determining liquidity standards binding on banks;

v) Resolution 258/2011 of the Polish Financial Supervision Authority of 4

October 2011 on detailed principles of functioning of the risk

management system and internal control system, and specific terms of

assessing internal capital, reviewing the assessment process and

maintaining internal capital by banks and principles of adoption of policy

on variable remuneration of senior management;

vi) Resolution No. 208/2011 of the Polish Financial Supervision Authority

of 22 August 2011 on detailed rules and conditions for considering

exposure when determining the observance of the exposure concentration

limit and the large exposure limit;

vii) Resolution No. 207/2011 of the Polish Financial Supervision Authority

of 22 August 2011 amending the Resolution of the Polish Financial

Supervision Authority No. 384/2008 on requirements concerning

67

identification, monitoring and control of concentration of exposures,

including large exposures;

viii) Resolution 206/2011 of the Polish Financial Supervision Authority of 22

August 2011 amending the Resolution No. 76/2010 of the Polish

Financial Supervision Authority on the scope and detailed procedures for

determining capital requirements for particular types of risk;

ix) Resolution 153/2011 of the Polish Financial Supervision Authority of 7

June 2011 amending the Resolution No. 76/2010 of the Polish Financial

Supervision Authority on the scope and detailed procedures for

determining capital requirements for particular types of risk;

x) Resolution No. 434/2010 of the Polish Financial Supervision Authority

of 20 December 2010 on other bank’s balance sheet items that are

included into the bank's principal own funds, their value, scope and

conditions of their inclusion in the bank's principal own funds;

xi) Resolution No. 369/2010 of the Polish Financial Supervision Authority

of 12 October 2010 amending the Resolution of the Polish Financial

Supervision Authority on the scope and detailed procedures for

determining capital requirements for specific types of risk;

xii) Resolution No. 367/2010 of the Polish Financial Supervision Authority

of 12 October 2010 amending the Resolution No. 381/2008 of KNF of 17

December 2008 on other deductions from original own funds, their

value, scope and conditions for a deduction of these items from the

bank's original own funds, other bank's balance sheet items that are

included into the bank's supplementary own funds, their value, scope and

conditions of their inclusion in the bank's supplementary own funds,

reductions of supplementary own funds, their value, scope and conditions

of deducting such items from the bank's supplementary own funds; and

the scope and method of including banks' activities in holdings when

calculating own funds;

xiii) Resolution No. 386/2008 of the Polish Financial Supervision Authority

of 17 December 2008 on the establishment of liquidity standards binding

for banks;

xiv) Resolution No. 384/2008 of the Polish Financial Supervision Authority

of 17 December 2008 on requirements concerning identification,

monitoring and control of concentration of exposures, including large

exposures.

KNF takes into account domestic banking sector conditions in the process of

development of norms referred to in point a.

Comments

AC 1. A mechanism exists to review decisions taken with respect to the early detection

and timely intervention and resolution of troubled banks.

Description There is an internal process within the KNF to review the performance of the

early detection and timely intervention resolution framework.

Comments

68

Principle

16.

Effective resolution processes

Effective failure-resolution processes should: facilitate the ability of the deposit

insurer to meet its obligations including reimbursement of depositors promptly

and accurately and on an equitable basis; minimise resolution costs and

disruption of markets; maximise recoveries on assets; and, reinforce discipline

through legal actions in cases of negligence or other wrongdoings. In addition,

the deposit insurer or other relevant financial system safety-net participant

should have the authority to establish a flexible mechanism to help preserve

critical banking functions by facilitating the acquisition by an appropriate body

of the assets and the assumption of the liabilities of a failed bank (e.g., providing

depositors with continuous access to their funds and maintaining clearing and

settlement activities).

Overall

Assessment

Materially Non-Compliant

Comments Although the failure resolution regime in Poland has been effective at resolving

bank failures in the past, the resolution regime is fragmented and missing a

number of important tools. Presently, the KNF has a mandate to make decisions

regarding liquidation and merger of problem banks while the Ministry of

Finance is provided with the power to recapitalize banks (either through the

State Treasury granting a guarantee or by taking over (nationalizing) the

institutions. When a bank is declared insolvent or threatened with insolvency (a

bank towards which the guarantee condition is fulfilled) its activity is suspended

by the KNF and a bankruptcy petition at a relevant court is filed. In case the

court issues a decision declaring bankruptcy, there is a formal bankruptcy

procedure under the Bankruptcy and Reorganisation Law.

In addition to the power to conduct depositor reimbursement, the BFG can also

make loans and guarantees, provide endorsements, acquire receivables and

support mergers and open bank assistance provided it results in a least cost

resolution. The conditions of granting financial assistance include a least cost

test, using the existing own (ex-post) funds of the bank for loss coverage of the

bank and ensuring that the assistance provided will ensure the viability of the

member bank receiving assistance.

Despite these features, the resolution regime lacks the ability to undertake

measures such as purchase-and-assumption resolutions and temporary ownership

provisions such as bridge banks. New legislation is under development which

would address the deficiencies in the resolution regime and make the BFG the

primary resolution authority in Poland. The legislation proposes the

establishment of a fully functional resolution framework using a wide range of

resolution tools, such as: sale of business, bridge bank, asset separation, and bail-

in. The scope of instruments included in the draft is in line with the FSB Key

Attributes of Effective Resolution Regimes for Financial Institutions and the EU

69

Bank Restructuring and Resolution Directive.

EC 1. The overall national legal framework ensures the effective and timely

functioning of the failure resolution framework, permitting the orderly

liquidation of the bank, the payout or transfer of insured deposits and the

intervention by a receiver to carry out the resolution functions.

Description The BFG has been provided with both a mandate for depositor reimbursement

and the provision of financial assistance. Financial assistance includes: loans,

endorsements, guarantees, acquisition of receivables, and financial support for

mergers and acquisitions. The use of these financial assistance tools allows the

BFG to potentially avoid bank closure and paying-out deposits. In the process of

granting financial assistance to banks the least costly method is considered

(Article 20 (3) of the BFG Act of 1994 – the amount of financial assistance

should not exceed the total maximum amount of guaranteed funds).

The KNF has been provided with a mandate to make decisions regarding

liquidation and merger of problem bank (Article 147 – 157e of the Banking

Law).

In accordance with the Act of 12 February 2010 on recapitalization of certain

financial institutions, the Ministry of Finance may support banks’

recapitalization process. The process of recapitalization may consist of:

1) the State Treasury’s guarantee granted in order to increase own funds of

public institutions, and

2) the taking over of public institutions by the State Treasury.

Comments Although the failure resolution regime in Poland has been effective at resolving

bank failures in the past, the resolution regime is fragmented and is missing the

ability to use a wide range of resolution tools, such as:

i) sale of business,

ii) bridge bank,

iii) asset separation, and

iv) bail-in provisions.

The scope of instruments included in the draft legislation to introduce a more

comprehensive resolution regime is in line with the FSB Key Attributes of

Effective Resolution Regimes for Financial Institutions.

EC 2. The mandate of the deposit insurer or other safety-net participants allows for the

effective resolution of banks of all sizes.

Description See EC 1.

Comments The resolution regime does not presently allow for the use of a bridge institution

or similar mechanism to help preserve critical banking functions which would be

particularly beneficial in resolving large complex banks.

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EC 3. Bank resolution and depositor protection procedures are not limited to depositor

reimbursement. The deposit insurer or other safety-net participant has effective

resolution tools designed to help preserve critical bank functions, to achieve a

transfer of accounts or assets/businesses and/or maintain continuity of banking

services.

Description See EC 1.

Comments See EC 1.

EC 4. Where no single authority is responsible for all resolution processes, the

mandate, roles and responsibilities of each safety-net participant is clearly

defined and formally specified.

Description See EC 1.

Comment

EC 5. One or more of the resolution procedures allows the flexibility for resolution at

a lesser cost than otherwise likely on a depositor reimbursement in a liquidation.

Description See EC 1.

Comments

EC 6. A clear and well-sustained methodology is available to the deposit insurer or

other safety-net participant to provide for the transfer of insured deposits to

stronger banks.

Description See EC 1. The BFG has arrangements in place to transfer deposits to stronger

banks.

Comments

EC 7. Resolution procedures clearly ensure that bank shareholders take first losses.

Description See EC 1.

Comments Resolution measures in place such as liquidation and reimbursement assure that

shareholders take first losses. In the provision of financial assistance, it is less

clear that in all circumstances shareholders always take first losses.

Principle

17.

Reimbursing depositors

The deposit insurance system should give depositors prompt access to their

insured funds. Therefore, the deposit insurer should be notified or informed

sufficiently in advance of the conditions under which a reimbursement may be

required and be provided with access to depositor information in advance.

Depositors should have a legal right to reimbursement up to the coverage limit

and should know when and under what conditions the deposit insurer will start

the payment process, the time frame over which payments will take place,

whether any advance or interim payments will be made as well as the applicable

coverage limits.

Overall

Assessment Compliant

Comments The BFG is capable of giving depositors prompt access to their insured funds.

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The ability of the BFG to collect SCV information on an ongoing basis and a

highly developed IT system allow the BFG to meet its legislated time frame for

reimbursements.

EC 1. The deposit insurer is able to reimburse depositors promptly after the deposit

insurance system is triggered by law, contract or the relevant authority.

Description Pursuant to Article 22 (3) of the BFG Act of 1994, the BFG is required to

reimburse insured depositors (i.e., pay out guaranteed funds) within 20 working

days from the day of fulfillment of the guarantee condition. Should

circumstances occur that make it impossible to reimburse depositors within 20

days (in particular owing to inaccuracies in data records or the calculation

system of the member bank) the KNF may at the request of the BFG

Management Board, postpone the disbursement date by no more than 10

working days.

In order to fulfill the above-mentioned terms, the following processes were

adopted in the BFG Act of 1994:

i) KNF’s passing to the BFG any information on the emergence of the

circumstances that could result in the liabilities of BFG to depositors on

account of the guaranteed assets,

ii) the collection and analysis of information about banks covered by the

deposit guarantee system (e.g., performed by the EWS),

iii) the use of various financial sources for the disbursement of guaranteed

funds – ex post and ex ante funds (see CP11),

iv) the obligation to possess and maintain the calculation systems in banks,

v) the use of a unified scope, structure and format for the data collected in

the banks’ calculation systems, which were specified in the Resolution of

the Minister of Finance,

vi) the structure of data based on the SCV,

vii) the BFG’s authorization to control data correctness in the calculation

systems,

viii) the KNF’s authorization to exercise supervision on the calculation

systems,

ix) the BFG’s authorization to obtain the depositors list from the trustee

administrator within 3 working days from the day of fulfillment of

guarantee condition,

x) the BFG’s authorization to exercise current control over drafting the

depositors list, and in case of reasonable doubt as to the correctness of

individual data on the depositors list, the right of the BFG to obtain

confirmation of the correctness of data from the trustee administrator of

the bank, and

xi) the BFG’s eligibility to make disbursement of guaranteed funds through

the trustee administrator or the entity with whom BFG shall conclude an

agreement on (while choosing a procedure of disbursement of guaranteed

funds, the BFG Management Board shall take into consideration

prerequisites stipulated in Article 26j (1) of the BFG Act of 1994).

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Issues regarding the current operational arrangements of the BFG are described

in EC4.

Comments

EC 2. The time frame for accomplishing the reimbursement process is prompt and

clearly stated to meet the public policy objectives of protecting depositors and

promoting public confidence and financial stability of the deposit insurance

system. The time frame is made public.

(a) Depositors are provided information after the failure on when and

under what conditions the deposit insurer will start the reimbursement

process and when the process is expected to be completed;

(b) Information on coverage limits, scope of coverage and whether

advance or interim payments will be made is provided; and

c) If there is an interest-bearing account, the deposit insurer shall

reimburse depositors for interest as provided by contract, law or

regulation up until at least the date the deposit insurance obligation is

triggered.

Description The BFG covers interest accruing until the day of the fulfillment of the

guarantee condition according to the interest rate specified in the agreement

regardless of the maturity date (Article 2 (2) and article 23 (1) of the BFG Act of

1994).

The BFG Management Board shall determine, by way of a resolution, the

procedure for the disbursement of guaranteed funds. The resolution shall be

made publicly by the BFG, by way of announcement in a paper of countrywide

circulation (Article 26l (1) and (3) of the BFG Act of 1994).

The above information is available to the depositors, regardless of the fulfillment

of guarantee condition. These are sent to customers by banks (pursuant to Article

38b (1)(2) and Article 38b (3) of the BFG Act of 1994) and publicly available

through the BFG’s information actions (e.g., the BFG’s website or leaflets).

Comments

EC 3. In order to promptly reimburse depositors, the deposit insurer has:

(a) Access to necessary data, including deposit account records, to

prepare for reimbursing depositors as soon as the supervisor is aware of a

likelihood of failure.

(b) The power to review in advance by itself (or by request from the

supervisory authority) the way depositor records are kept by banks to

ensure the reliability of records, to reduce the time needed for calculation

and verification of depositors’ claims;

(c) A range of payment methods for reimbursing depositors;

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(d) Access to adequate and credible sources of funding (e.g. reserve fund,

Ministry of Finance, central bank) to meet its obligations under the

established time frames.

Description The BFG is informed about the probability of carrying out a reimbursement

pursuant to Article 38 (3a) of the BFG Act of 1994. In accordance with this

Article the KNF shall pass to the BFG any information on the emergence of the

circumstances that could result in liabilities to the BFG. The BFG is also

authorized to obtain a depositors list from the trustee administrator within 3

working days from the day of fulfillment of the guarantee condition (Article 26i

(1) of the BFG Act of 1994). Insured depositors are reimbursed based on the

depositors list. The list of depositors is drawn up on the basis of the calculation

system of the bank (Article 26g of the BFG Act of 1994) and the use of a

standardized data template for all banks. The BFG Management Board is

authorized to exercise control over the drafting of the depositors list and the

verification of the data used in its EWS.

The BFG Management Board shall determine, by way of a resolution, the

procedure of making disbursement. The resolution shall be made publicly known

by the BFG, by announcing it in national newspapers (Article 26l (1) and (3) of

the BFG Act of 1994). Pre-arranged agreements have been made with three

domestic banks to be prepared to act as transfer agents. Reimbursements of

insured deposits can be made via money transfer to a bank account or cash

payment (the method to be chosen by the depositor). With respect to funding,

the BFG has in place a wide range of funding mechanisms (see description of

CP11).

Comments

EC 4. The deposit insurer has the capacity to carry out the reimbursement process in a

timely manner, including:

a) Adequate information technology;

b) Adequate personnel (in-house or contractor).

Description The BFG has designed and implemented an internal IT system for the purpose of

reimbursement. The scope, data and structure are based on a SCV and data

format included in the calculation system as defined by the Regulation of the

Minister of Finance of 27 January 2011. The data is transmitted to the BFG

using a website application named “Portal SRG” under the agreement concluded

between the BFG and banks. The BFG IT system helps to process data received

from the bank into the depositor lists for prompt reimbursements.

The BFG employs a suitably qualified and experienced in-house IT staff to

support its reimbursement system. The Deposit Guarantee Department is

responsible for the overall management of the reimbursement process including

IT services and the verification of data quality in the calculation systems.

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Comments

EC 5. In situations where there may be extended delays in reimbursements, the deposit

insurer can make advance, interim or emergency partial payments.

Description The BFG focuses on a 20 day reimbursement period and has optimized its

system to deliver reimbursement for even shorter periods (e.g., within 7 working

days) therefore it has not emphasized a formal interim payment system –

although such arrangements could be utilized if needed.

Comments The system tests indicate that reimbursement targets of 20 working days are

achievable even for the largest banks. Test results are provided to the MoF.

AC 1. The deposit insurer has contingency plans as well as regularly scheduled tests of

its systems.

Description The BFG carries out effectiveness tests of its reimbursement systems on

statutorily fixed regular dates. The tests results are passed on to the MoF within

14 days of their termination. And for business continuity purposes, the BFG

established a back-up temporary site in the event of circumstances preventing

operations in BFG’s headquarters.

Comments

AC 2. The reimbursement process is audited by an independent auditor or authority.

Description Operations of the BFG are supervised by the MoF (Article 3 (5) of the BFG Act

of 1994), and the financial statements of BFG are subject to audit by an entity

authorized under separate provisions (external auditor) and is approved or

rejected by the Council of Ministers (Article 17 (2) and (4) of the BFG Act of

1994).

Comments

Principle

18.

Recoveries

The deposit insurer should share in the proceeds of recoveries from the estate

of the failed bank. The management of the assets of the failed bank and the

recovery process (by the deposit insurer or other party carrying out this role)

should be guided by commercial considerations and their economic merits.

Overall

Assessment

Compliant

Comments The BFG shares in the proceeds of recoveries from failed banks. Asset

management practices emphasize maximizing economic returns.

EC 1. If the deposit insurer plays a role in the recovery process, its role is clearly

defined in law or regulation and the deposit insurer maximises recoveries to the

extent that it can from the failed bank on a commercial or economic basis.

Description The BFG’s role in the recovery process is clearly defined in the following legal

acts:

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i) the BFG Act of 1994 – according to which BFG is subrogated to the

rights of depositors in the amount of guaranteed funds,

ii) the Bankruptcy and Reorganization Law of 28 February 2003 which

defines the class of the BFG’s claims, rights and duties of creditors in the

event of the bank’s bankruptcy.

In the Polish legal system principles concerning pursuit of claims against

insolvent debtors, including banks, are specified in the Bankruptcy and

Reorganization Law (especially provisions regarding bankruptcy of a bank are in

Part 3, Title 2 of the Law).

Activities in the bankruptcy proceedings are carried out by the administrator or

the trustee, appointed, directed and supervised by the court. The proceedings

should be conducted in a manner which provides for the maximum satisfaction

of the creditors’ claims (Article 2 of the Law). The Law also specifies rights of

creditors, including the BFG in the event of payment of guaranteed funds.

Comments

EC 2. The deposit insurer shares in the proceeds of the recoveries arising from the

failure of its member banks. The deposit insurer is clearly recognised as a

creditor of the failed bank for the reimbursement of losses and costs it incurs;

and receives recoveries from the estate of the failed bank directly.

Description Pursuant to Article 26d (1) of the BFG Act of 1994, due to disbursement of the

guaranteed funds, the BFG is entitled to a claim against the entity covered by the

obligatory guarantee system towards which the guarantee condition was

fulfilled, to pay an amount equal to the sum total of the guaranteed funds, subject

to the FPGS for the bank. The BFG is also entitled to a claim after the

declaration of bankruptcy of the entity.

The creditor ranking of the BFG in an insolvency is stipulated in Article 440 (2)

of the Bankruptcy and Reorganization Law. The BFG claims rank within class

two (class one encompasses primarily the costs of bankruptcy proceedings). The

BFG claims are in a higher claim class in bankruptcy proceedings than the

claims of other unsecured creditors, including claims due to deposits not covered

by a guarantee.

The costs of activities related to the preparation and execution of disbursement

of guaranteed funds shall be borne by the bank with respect to which the

guarantee condition has been fulfilled (Article 26n (1) of the BFG Act of 1994).

Should BFG cover the disbursement costs, BFG is entitled to make a claim with

respect to said bank (Article 26n (3) of the BFG Act of 1994).

Comments

76

EC 3. The deposit insurer has at least the same or comparable creditor rights or status

as a depositor in the conduct of the estate of the failed bank, and has access to

information to make and pursue its recovery claim against the estate and to

exercise the appropriate degree of influence on the conduct of the estate.

Description BFG claims in bankruptcy proceedings are higher than the claims of depositors

whose rights have been subrogated by the BFG, due to a classification of the

BFG claims as class two, while depositor claims not guaranteed by BFG are

satisfied in class four. The remaining rights of the BFG as a creditor are the

same as the rights of the remaining creditors, including in terms of participation

in bankruptcy proceedings.

It should be noted that in practice, the strong position of the BFG as a creditor is

also a consequence of the fact that the portion of BFG claims in the overall

amount of claims encumbering the bankruptcy estate is large. The aggregate size

of BFG claims enables it, for instance, to convene a Committee of Creditors

relatively easily.

Comments

EC 4. If, in addition to creditor status, the deposit insurer is the receiver/liquidator/

conservator of the failed bank or of only some assets of the failed bank, then:

a) the role played by the deposit insurer for asset management and

recovery is clearly defined in law or regulation; and

b) its asset management and recovery approaches are guided by such

factors as: the quality of the assets, market conditions, expert advice, and

any legal requirements.

Description Other than participating in the bankruptcy proceedings as a creditor, the BFG

does not play any other role as the receiver/liquidator.

Comments Presently not applicable, but under planned new legislation the BFG would

assume the role of receiver in resolution.

EC 5. In determining the asset management and recovery approaches, the interests of

all creditors are given appropriate weight and decisions on asset disposal are

made using concepts such as net present value to balance the competing goals of

securing maximum value and early disposal.

Description Bankruptcy proceedings are conducted in accordance with the Bankruptcy and

Reorganization Law and are conducted in a manner which provides for the

maximum satisfaction of the creditors’ claims and when reasonable – for the

preservation of the debtor’s enterprise (Article 2). The official trustee is

obligated to exercise due diligence in such a way as to enable the optimal

77

management of the assets of the bankruptcy estate in order to satisfy creditor

claims to the greatest possible extent, in particular by minimizing the costs of

bankruptcy proceedings (Article 179), whereas the administrator is obliged to

exercise administration in accordance with the rules of diligent management

(Article 183).

The conduct of proceedings by the official trustee or administrator of the

bankruptcy estate is subject to court supervision. An additional form of

supervision is imposed on the actions of the administrator or official trustee by

the Committee of Creditors, referred to in greater detail in the Additional

Criterion.

Comments

AC 1. The deposit insurer is entitled or authorised to be a member of the committee of

creditors to follow the liquidation process of the failed bank as it is usually

subrogated to the rights of the insured depositors.

Description The BFG may be a member of the Committee of Creditors appointed by the

judge-commissioner. In the event that the BFG possesses at least 20 per cent of

the aggregate sum of claims, then the judge-commissioner is obliged to appoint a

Committee of Creditors at the request of the BFG (Article 201-213 of the

Bankruptcy and Reorganization Law). In practice BFG claims typically always

constitute more than 20 per cent of the aggregate sum of claims. Consequently it

is at the discretion of the BFG whether a Committee of Creditors should be

appointed.

Comments