Main points:

1. Three pillars of effective cross-border stability framework Stanisław Kluza, Ph.D.ChairmanKomisja Nadzoru Finansowego – Polish Financial Supervision Authoritywww.knf.gov.pl/enPlac Powstańców Warszawy 1, 00-950 Warsawknf@knf.gov.pl

2. Main points: • Global stability framework must be based on national authorities. • Regulators should influence the size of financial institutions. • Those who influenced a bank’s strategy should be held accountable if it fails.

3. Pillar one: competent supervision at the country level Global stability framework must be based on national authorities • Financial turbulences, notwithstanding their cross-border nature, originate locally. Strong local supervision must therefore be at foundations of any international regime. • Some prudential ratios should be established globally, but their application must be left to national authorities who know local markets best. • As responsibility for deposits held in banks remains at the country level, capital and liquidity requirements should be at discretion of local supervisors. • International supervision over cross-border groups should also be enhanced. To this end, EBA could replace home supervisors in the role of coordinators in colleges of supervisors. Public aid for financial institutions as a percent of GDP (2008-2009, excl. guarantees on interbank loans) BUT Source: EC

4. Pillar two:regulatory regime that discourages consolidation Some banks not only are too big to fail, but may also be too expensive to survive • The risk generated by SIFIs surpasses the abilities of guarantee systems and state budgets to absorb it. Is it fair for depositors of those institutions? Is it fair for taxpayers? • The more an institution grows, the more risks it creates – and the more stringent capital requirements it should face. • The role of regulators, also, is to remove incentives to continuing consolidation implicit in prudential requirements. • Proposals to apply liquidity requirements at the group level, not to individual institutions, could result in increased risk in the banking system. • We may think about ways to foster diversification of the banking sector rather than mergers. Deposits held in the largest banks and total state budget expenditures (bln euro, 2009) Source: Bloomberg

5. Those who influenced a bank’s strategy should be held accountable if it fails Pillar three:properly addressed responsibility • Supervisory competences should always be accompanied by responsibility for deposits. • Should the parent institution’s financial responsibility for its subsidiary be limited only to the capital invested? • There is a need for establishment of some formal ties between deposit guarantee schemes, especially between those of parent companies and those of their subsidiaries in other countries. • As for banks operating internationally via branches, a kind of additional insurance is needed in case their home DGSs are to become insolvent. Share of banking sector assets held by banks under foreign control (December 2008)