Opinion of the European Central Bank of 1 September 2008 at the request of the Polish Minister for Finance on a draft law on the Financial Stability Committee (CON/2008/39)

OPINION OF THE EUROPEAN CENTRAL BANK of 1 September 2008 at the request of the Polish Minister for Finance on a draft law on the Financial Stability Committee (CON/2008/39) Introduction and legal basis

On 10 July 2008 the European Central Bank (ECB) received a request from the Polish Minister for Finance for an opinion on a draft law on the Financial Stability Committee (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the third and sixth indents of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to Narodowy Bank Polski (NBP) and to rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft law

1.1 The draft law will establish the Financial Stability Committee (hereinafter the ‘Committee’) in the following composition: (i) the Minister for Finance (as Chairman); (ii) the NBP President; and (iii) the Chairman of the Financial Supervision Commission (FSC) . The Committee is to pursue the objective defined in the draft law as ‘fostering and protection of the stability of the national financial system through the exchange of information, opinions and assessments of the situation in the financial system in the country and abroad and the coordination of activities in this area’ . Acting unanimously, the Committee may adopt ‘positions’ and ‘conclusions’ . The Committee may also establish working groups, composed of staff from the Ministry of Finance, NBP and the FSC (hereinafter the ‘three represented institutions’) as well as invited external experts . The Committee

meetings are convened by the Minister for Finance, at least once every 6 months, and are prepared by Ministry of Finance staff . 1.2 Specifically, the Committee’s tasks will include: (i) Analytical activity, i.e. producing assessments of the situation in the national financial system and on international markets, and ensuring a proper flow of information between members of the Committee regarding major events and trends which could constitute a threat to the stability of the national financial system ; (ii) Development of crisis management procedures to be applied in the event of a threat to the stability of the national financial system. After adoption, the crisis management procedures are submitted by the Committee to the three represented institutions for implementation ; (iii) Crisis management coordination in situations where an immediate threat to the stability of the national financial system materialises. In such cases, the FSC Chairman submits to the Committee an opinion on the solvency of the threatened entities, the NBP President submits an opinion on the liquidity of the banking sector and the Minister for Finance submits an opinion on the possibility of support for the threatened entities from public funds. Furthermore, the NBP President and the FSC Chairman submit opinions on the systemic significance of the threatened entities ; and (iv) International cooperation, as the draft law provides that the members of the Committee may, for the purpose of strengthening international cooperation in support of financial stability, conclude agreements with institutions carrying out tasks in this area in the member states of the European Economic Area and in particular with the ECB, national central banks within the European System of Central Banks (ESCB), the relevant ministries and supervisory agencies .

2. Central bank participation in the Financial Stability Committee

2.1 Central bank independence In one of its previous opinions , the ECB advocated the creation of the Committee and NBP’s participation in it as one possible measure to ensure that NBP can continue to provide the necessary contribution to financial stability, following the implementation of the supervisory reform in Poland transferring the banking supervision responsibilities from NBP to a newly-created separate

authority (the current FSC). Therefore the ECB welcomes the establishment of the Committee, as it responds to the need to take coordinated action in financial crisis situations. However, in line with another of its previous opinions, the ECB recommends that: (i) the tasks attributed to the Committee must not compromise NBP’s independence with regard to its central bank tasks; and (ii) the legal framework of the Committee should be precisely formulated to ensure that the effectiveness of the coordination process is not affected by possible uncertainties regarding the role of the Committee and its participating bodies . The ECB recommends that such principles are followed, inter alia, in internal regulations of the Committee, to be adopted under the draft law . 2.2 Financial stability role of the central bank The ECB acknowledges that under the draft law, certain specific responsibilities in the field of financial stability will be assigned to NBP. In particular, the draft law amends the Law on Narodowy Bank Polski by including among NBP’s tasks the ‘task in support of the stability of the national financial system referred to in Article 1(4) of the [draft law]’, i.e. preparation of opinions addressed to the Committee on the systemic significance of the threatened entities . Additionally, it will become one of the tasks of NBP’s Management Board to produce analyses of the stability of the financial system . Moreover, NBP will be empowered to request credit institutions to provide information relevant to the assessment of the banking system’s financial stability , in addition to the current obligation of credit institutions to report on data relevant to the assessment of their financial condition and the banking sector risk . Such new powers are welcomed as they would facilitate NBP’s effective performance of its financial stability role. However, all the abovementioned amendments fall short of introducing an explicit financial stability function for NBP, encompassing the broad range of central bank contributions to financial stability . Therefore, the ECB reiterates its previous recommendation that the Law on NBP should be amended to specify that NBP has formal responsibility for contributing to financial stability by monitoring and assessing the financial system as a whole, as a separate function from hands-on supervision and financial regulation.

3. Rules on exchange of information

3.1 The draft law provides that all persons participating in Committee meetings, or in working groups established by the Committee, may exchange information necessary for the proper functioning of the Committee, while being obliged to keep such information confidential . The Committee may also publish public statements on its work, including as regards its ‘findings’. Committee members’ legal liability for information published in this way is excluded . Furthermore, the draft law provisions amending the Law on NBP define more precisely the exclusions from NBP’s confidentiality obligations, as contained, inter alia, in the Law on NBP and the Law on banking . In particular, NBP will be entitled to provide the Minister for Finance and the FSC with information obtained from individual credit institutions, as relevant to the work of the Committee . Reciprocally, the FSC Chairman will be entitled to provide information to NBP and the Minister for Finance . 3.2 The ECB welcomes the aim of ensuring effective exchange of information between members of the Committee with a view to allowing the Committee to be an efficient means of communication and coordination while respecting each institution’s responsibility. Furthermore, in line with its earlier opinion , the ECB notes that provisions relating to information-sharing within the Committee should be: (i) consistent with Community law regulating the exchange of supervisory and statistical information and professional secrecy , as well as with the Law on NBP; and (ii) capable of facilitating the operation of relevant EU Memoranda of Understanding to which the Polish authorities are signatories . The ECB considers in particular that, as part of the proposed amendments relating to exchange of information, appropriate procedures and amendments to the Law on the NBP should be considered ensuring that correctness and accuracy of information submitted by individual credit institutions could be verified by NBP. This would allow NBP to exercise its powers in the field of financial stability effectively and safeguard the high quality of

information exchanged within the Committee . In this respect the ECB also points to the published draft amendments to the Banking Directive, which may result in the introduction of an obligation for the supervisory authorities of the Member States to alert the relevant national central banks of arising crisis situations and to provide them with relevant information . 3.3 The ECB notes that the draft law stipulates explicitly that information exchanged within the Committee may be disclosed to members of the FSC who are not represented on the Committee . Should this provision be maintained in the draft law, equivalent access rights will need to be safeguarded for members of NBP’s governing bodies and staff who perform financial stability tasks but do not directly participate in the work of the Committee. 3.4 Finally, the ECB notes that separate amendments to the Law on NBP will allow NBP to disclose data collected from individual credit institutions, inter alia, to: (i) the ECB, in connection with NBP’s obligations stemming from its participation in the ESCB; (ii) foreign entities, in performance of Poland’s international obligations; (iii) the Minister for Finance, for the purposes of management of the public debt; and (iv) other entities, as specified in separate provisions . As stated in paragraph 3.2 of this opinion, the ECB would underline the fact that Community law provisions not only apply to NBP’s provision of information to the ECB but also to other listed instances of exchange of supervisory and statistical information. It could be advisable to define such other allowed instances of information disclosure by NBP more precisely in the draft law including a reference to compliance with Community law in this respect.

This opinion will be published on the ECB’s website.

Done at Frankfurt am Main, 1 September 2008.

[signed]

The President of the ECB

Jean-Claude TRICHET