Opinion of the European Central Bank of 15 November 2010 on building societies (CON/2010/81)

OPINION OF THE EUROPEAN CENTRAL BANK of 15 November 2010 on building societies (CON/2010/81) Introduction and legal basis

On 11 October 2010 the European Central Bank (ECB) received a request from the Polish Parliament for an opinion on a draft law on building societies and State support for home savings schemes (hereinafter ‘the draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union, the sixth indent of Article 2(1) and Article 2(2) 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 the rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets, as well as to instruments of monetary policy of Member States other than Member States whose currency is the euro. 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

The draft law provides for a legal framework for the operation of building societies (kasy oszczędnościowo-budowlane), classifying them as a sub-category of credit institutions (banks ), operating in the form of joint-stock companies . The business of building societies will exclusively comprise receiving deposits from natural persons and granting mortgages to such persons with the aim of financing housing-related investments specifically enumerated in the draft law . The draft law is an attempt to re-

establish the system of building societies which had been first introduced in the legal provisions in 1997 ,

but never realised in practice.

2. ECB comments

2.1 Obligation to maintain minimum reserves with the central bank

2.1.1 The draft law proposes an arrangement under which building societies are to be excluded from the

obligation to hold minimum reserves with Narodowy Bank Polski (NBP).

2.1.2 In past opinions , the ECB has maintained that the Eurosystem’s minimum reserves obligations

apply to entities that fulfil the functional criteria of a ‘credit institution’ according to the definition

contained in the Eurosystem’s minimum reserves rules , which cross-refers to criteria defined in

whose business is: (i) to receive deposits or other repayable funds from the public; and (ii) to grant

credit for their own account. The ECB notes that building societies will fulfil both of the functional

criteria of a ‘credit institution’, namely that they will: (i) receive deposits from natural persons, i.e.

deposits ‘from the public’ within the meaning of the Directive 2006/48/EC; and (ii) grant credit for

their own account . Consequently, in line with its previous opinions , the ECB considers that

building societies will be subject to the Eurosystem’s minimum reserves requirements when Poland

adopts the euro . Such requirements, and the sanctions related to them , will apply directly by the

operation of the Union law.

2.1.3 As regards the period before the adoption of the euro by Poland, the ECB would welcome the

inclusion of building societies in NBP’s minimum reserves regime as a measure facilitating the

harmonisation of Polish law with the Eurosystem requirements . Moreover, since building societies are defined by the draft law as a sub-category of banks, they will be eligible to access central bank liquidity, i.e. refinancing credit from NBP , in accordance with the same rules as those applying to regular banks. This extension to building societies of the central bank’s liquidity providing operations should be accompanied by the application of the minimum reserves obligations, which constitute a complementary monetary policy instrument, structurally linked to liquidity providing operations . 2.2 Calculation of contributions to the deposit-guarantee scheme The draft law sets the maximum level of contributions to be paid by the building societies to the Polish deposit-guarantee scheme (Bank Guarantee Fund, the ‘Fund’) at 0.1% of the building societies’ risk-weighted balance sheet assets and guarantees and endorsements . First, the ECB notes that the draft law may need to be updated to refer to the method for calculating maximum contributions to the Fund specified in the currently binding provisions . Second, the ECB understands that the intended effect of Article 18 of the draft law is to impose on the building societies a level of contributions to the Fund lower than that applicable to regular banks. In this context, the ECB draws the Polish authorities’ attention to an advanced proposal by the European Parliament and Council to recast Directive 94/19/EC on Deposit Guarantee Schemes . The amendments introduced in the proposed recast Directive aim, inter alia, at harmonising the calculation of contributions paid by all types of credit institutions to the deposit guarantee schemes . The ECB recommends that the Polish authorities take due account of this ongoing legislative process when defining the building societies’ contributions to the Fund.

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

Done at Frankfurt am Main, 15 November 2010. [signed]

The President of the ECB

Jean-Claude TRICHET