Tom 37 (2014): Zeszyt 1 (October 2014)

This paper analyzes possible consequences of new reforms of the EU supervisory structure. The focus is on its impact in the supervision of European banking groups operating on the Polish fnancial market. The paper also assesses proposals for new regulation in the banking sector submitted by the European Commission.

There is a possibility that the new regulations would constitute acceptance of a higher level of risk in the fnancial sector. A further weakening of supervisory standards is anticipated to hide shortages in own sources of funding. Additionally, there may be increased pressure for financing the economy to speed up economic growth. So far, sufficient steps have not been taken towards restoring the health of the fnancial sector. Effective actions can be performed only at the domestic level. However, they are only possible if they are not restricted by European law. Effective counter-cyclical prevention at the credit market is possible only at the local level.

The paper emphasizes that the lack of proper country-level fnancial supervision can cause systemic risk at the local level. Those risks quickly enlarge and spread to become international in scope.

This paper's objective is analysis of state aid actions carried out by the Community member states that were undertaken between 1 October 2008 and the end of 2011 in reaction to the fnancial crisis. The analysis includes objectives, the scope and the amount of aid granted by the member states and the amount of aid actually used by fnancial institutions in these countries. In addition, the effectiveness of undertaken actions was assessed.

State aid actions targeted at rescuing the banking sector were ratified by 22 member states, whereas fnancial institutions in 19 member states made use of the granted aid. Primarily, the actions undertaken by the member states mainly comprised granting guarantees. However, following the spread of the crisis, the aid focused on bailing out banks and undertaking actions regarding assets of reduced quality. The fnancial crisis did not hit banking sectors of the member states equally; therefore, the size of the aid varied significantly. In 2008-2011, banks were using less than 35% of the granted resources, while the aid provided by Ireland, the United Kingdom, Germany, Denmark, and France comprised 73% of all used resources.

State aid helped calm the situation in fnancial markets and ensured stability of the fnancial system; the aid most likely prevented mass bankruptcies of banks. On the other hand, they may harm competition within the EU internal market. Currently, the key task for the member states is discontinuation of the use of state aid, as well as adequate restructuring of the banks that received state aid.

The aim of this paper is to analyze main weaknesses of the pre-crisis supervisory and regulatory architecture of the fnancial market in the EU, a system which has become a catalyst of the subprime crisis in Europe. A review of the literature and an analysis of legal documents were used to research the subject. The major conclusion of the paper is that these imperfections have resulted mainly from an insufficient supervisory mandate of the European Central Bank (ECB), as well as from the principle of home-country supervision. Before the crisis, activities of the ECB were focused mainly on its basic monetary policy mandate while in the case of macro prudential supervision, the ECB could only form recommendations that were not effectively translated into specific actions of national micro prudential supervisors. Empowering the ECB with microprudential competences was proposed in the so-called choice-based approach, which was not implemented due to the fact that the member states perceived it as a limitation on their sovereignty. Another weakness of fnancial supervision in the EU originated from the principle of home-country supervision, according to which a home-country supervisor had a dominant position over the host-country supervisor. The principle has led to considerable information asymmetry, as well as to a conflict of interests between national supervisors, which impeded proper crisis management. The post-crisis reform has eliminated none of these problems.

The article begins with a presentation of the new European Stability Mechanism implemented in September 2012. It describes the operating principles, procedures for granting fnancial assistance for EMU members, and organizational structure of the institution. The major objective of the article is to assess the effectiveness of ESM from the economic perspective; therefore, the research question is whether the ESM can prove useful in combating the current European sovereign debt crisis (and possible future crises). In order to answer this question, EU treaties and legal acts as well as the economic literature were analyzed. The author concludes that the ESM has very limited power in fighting the sovereign debt crisis, since its capability to support the largest EMU countries (should the need arise) is highly insufficient. Furthermore, being a simple loan mechanism, it cannot prevent any future crises.

The purpose of supervision of the whole fnancial market is to ensure the proper functioning of the market, its stability, security, and transparency, as well as to ensure confidence in the fnancial market the protection of the interests of participants. This is achieved through implementation of the rule of law, in particular concerning banking supervision, insurance and pension supervision, supervision of the capital market, and supplementary supervision laws of credit institutions as well as insurance and investment companies which are parts of fnancial conglomerates. The European Union does not impose any particular form of organizational supervision over national legislatures. Despite this, in many member countries, including the UK, Germany and Poland, the integrated supervisors for banks, insurance companies and capital market do operate.

The article analyses the process of introducing integrated fnancial market supervision in the UK, Germany and Poland with an aim to compare their effectiveness.

The magnitude of the fnancial crisis, which begun in the U.S. in 2007-2008, revealed gaps in the supervisory system that were amplified in the increasingly integrated fnancial markets. Liberalisation of capital flows, which created space for functioning of international fnancial institutions of systemic importance, increased fragility of singular economies to anomalies occurring in other regions and facilitated transition of the crisis. At the same time, the ineptness of the supervisory mechanisms in handling systemic problems inherent in those realities was demonstrated. Confronting those challenges, the EU made a considerable effort to establish by 1 January 2011 the European System of Financial Supervision - a micro- and macro prudential system designed to facilitate coordination between national supervisors and enhance early warning capacities. In the United States, broad reforms were put into play by adoption of the Dodd-Frank Act. Given that effectiveness and cooperation require a convergence of standards and a similarity of institutional framework facilitates the task, the institutional analysis provided in the article enables a critical comparison of the reform efforts. It remains to be verified in practice, however, whether concerns about only the nominal “outside” nature of the reform prove accurate.

The paper consists of two parts. The first outlines determinants of international investment position (IIP); it also attempts to determine conditions of external balance of payments of a country with a negative net IIP. Ten the Laffer curve was used to determine a maximal economically justifed level of inviting foreign capital in order to support the country's economic development. This level determines equalization of net costs of the IIP income maintenance with an increase in the country's global product during a given period. When a national economy reaches this level, it creates a serious threat to its development. Similarly, failing to meet conditions of the external balance of payments usually results in serious economic crisis in the given country.

The second part is devoted to the presentation of the IIP of Poland. In the first decade of the current century, Poland supported its economic development by attracting significant amounts of foreign capital in the form of share and creditor capital. It led to a high negative net IIP, a situation which may threaten the stability of a country's external payment position and developmental perspectives. Nevertheless, the analysis of the IIP structure of Poland did not indicate the appearance of any extreme threats to its external payments position at the beginning of the second decade of the 21st century. However, excessive absorption of global product growth by IIP income maintenance may arouse some concern. This led to the conclusion that particular corrections in the country's economic policy are necessary.