Introduction to the banking system Banking Law European Banking Law 1
What is the banking system? Banking system Definitions Subdivisions of banking system All banks and other financial institutions operating in a particular country / region - Poland, France, EU All kinds of commercial activity provided by banks All legal provisions / regulations (domestic, European, international) applied by banks European Banking Law Corporate banking / retail banking Central bank / commercial banks Investment banks / insurance banks Traditional banking/ E-banking 2
Main branches of banking law Public banking law Base: Administrative Law Legal relations: COERCION, SUBORDINATION Subjects: Public vs. Private Topical items: Establishment and organization of banks Supervision over the banking system (security, legality) Private banking law Base: Commercial Law / Civil Law Legal relations: AUTONOMY, EQUALITY Subjects: Private vs. Private ( e. g. : natural person, legal person) Topical items: Contracts and agreements (e. g. : deposits, credits, cash loans, guarantees) Activity on financial market European Banking Law 3
Sources of domestic and European banking law • The Constituition of The Republic of Poland (article 227) • The Banking Law Act of 29 August, 1997 • The Act on National Bank of Poland of 29 August, 1997 • The Bank Guarantee Fund Act of 2016 ---------------------------DIRECTIVE 2013/36/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 26 June 2013 (CAPITAL REQUIREMENT DIRECTIVE, CRD IV) on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, REGULATION (EU) No 575/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 26 June 2013 on prudential requirements for credit institutions and investment firms -------------------------------REGULATION (EU) No 1093 /2010 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority) -------------------------------Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macroprudential oversight of the financial system and establishing a European Systemic Risk Board European Banking Law 4
The role of banks (by European Banking Federation, www. ebf. eu) 1. Banks act as facilitators between those who have money and those who need money, while also providing the systems for funds to flow between payers and payees. 2. The primary role of banks is to take in money from those with cash in hand to lend money to borrowers. Banks then receive loan repayments which can be used in new lending to other borrowers. 3. The traditional view of this process has been that banks “create” money by providing some of the money on deposit in the form of loans to borrowers, which returns to the banking system as deposits. This money can then be lent again and again, resulting in a multiplier effect. More recently, money creation has focused on how lending creates bank deposits i. e. whenever a bank provides a loan to a customer, a deposit is created. 4. Banks cannot lend freely without limits. They have to be able to lend profitably in a competitive market, while also managing liquidity risks (i. e. that they have sufficient liquid assets to repay depositors or investors when required) and credit risks (that some borrowers may not repay their loans). These lending activities are regulated and safeguarded by global/international standards and EU regulations. 5. Banks are also key players in national and international payment systems European Banking Law 5
Legal definition of a bank „A bank shall constitute a legal person, incorporated in accordance with the provisions of law, acting on the basis of authorisations, to undertake banking acts that expose to risk the financial resources entrusted to it under any redeemable title. person, established pursuant to the provisions of statute, operating on the basis of authorisations to perform banking operations that expose to risk funds which have been entrusted to the bank and which are in any way repayable” Principal banking operations: • Deposits / accounts • Cash loans / credits • Bank guarantees / sureties • Monetary settlements • Payment services • Safekeeping of valuables and securities • Purchase and sale of foreign exchange European Banking Law 6
Terms „bank” and „saving society” and its legal protection Article 3 The terms “bank” and “kasa” may be used solely in the names of banks as defined in the Article 2, and to describe the activities of or advertise such banks, with the proviso that: 1) this shall not apply to organizational units employing the terms “bank” or “kasa” when their activity indicates that these entities are not engaged in banking operations, 2) the term “kasa” may also be used in the name of organizational units, and to describe or advertise the activities thereof, where such units, pursuant to a separate act, take savings deposits from natural persons (…) and extend cash advances to them. Article 170 1. Performance of banking operations without authorisation shall not constitute grounds for charging interest, fees or commission, or obtaining other agreed remuneration. 2. Whoever has received interest, commission, fees or agreed remuneration for the operations referred to in para. 1 shall be obliged to return them. Article 171 1. Whoever carries out, without authorisation, the business of accepting funds from other natural or legal persons or organisations without legal personality in order to extend credits or loans or to expose such funds to risk in another way shall be liable to a fine of up to 10, 000 zloty and to imprisonment for a term of up to 5 years. 2. Anyone who, pursuing activity in contravention of the provisions of the present Act, employs the terms “bank” or “kasa” in the name of an establishment which is not a bank, or to describe or advertise the activities thereof is subject to the same penalty. European Banking Law 7
Banking operations Basic (core) operations (reserved solely for banks) • Operations on deposit accounts • Credits agreements • Guarantees • Entities other than banks cannot perform the abovementioned operations unless they are authorised under separate provisions ACTIVE operations: bank as a creditor (cash loan, credit, guarantee) PASSIVE operations: bank as a debtor (deposit account) Additional ( suplementary) operations • Cash loans • Sureties • Safekeeping • Payment cards • Purchase and sale of foreign exchange INTERMEDIARY operations: safekeeping, electronic money European Banking Law 8
Two-tier banking system Banking system State bank Commercial banks Cooperative bank Joint-stock company Central bank European Banking Law The National Bank of Poland European Central Bank 9
European Banking System – facts and figures (www. ebf. eu) Biggest banks by assets in the EU 1 HSBC 2, 374 USD trillion 2 BNP Paribas 2, 190 USD trillion 3 Credit Agricole 1, 817 USD trillion 4 Deutsche Bank 1, 676 USD trillion 5 Barclays 1, 496 USD trillion 6 Societe Generale 1, 454 USD trillion 7 Santander 1, 413 USD trillion 8 Groupe BPCE 1, 302 USD trillion 9 Lloyds 1, 010 USD trillion 10 Royal Bank of Scotland 0, 986 USD trillion Biggest banks by assets in the world 1 Industrial & Commerical Bank of China 3, 47 USD trillion 2 China Construction Bank 3, 02 USD trillion 3 Agricultural Bank of China 2, 82 USD trillion 4 Bank of China 2, 60 USD trillion 5 Mitsubishi Financial 2, 59 USD trillion 6 JP Morgan Chase 2, 49 USD trillion 7 HSBC 2, 37 USD trillion 8 BNP Paribas 2, 19 USD trillion 9 Bank of America 2, 19 USD trillion 10 Wells Fargo 1, 93 USD trillion European Banking Law 10
European Banking System – facts and figures (www. ebf. eu) Number of banks Assets Loans Deposits Capital and reserves Staff GER 1 702 € 7, 7 billion € 4, 6 billion € 0, 4 billion 628 121 FRA 445 € 7, 7 billion € 4, 6 billion € 0, 5 billion 402 010 UK 355 € 8, 8 billion € 3, 9 billion € 3, 7 billion € 0, 7 billion 387 577 PL 664 € 0, 4 billion € 0, 27 billion € 0, 058 billion 173 043 EA 19 5 063 € 30, 975 billion € 17, 574 billion € 17. 008 billion € 2, 485 billion 1 957 584 Non – Eurozone 1 543 € 12, 2 billion € 5, 99 billion € 4, 94 billion € 0, 99 billion 842 327 European Banking Law 11
European Banking System – facts and figures (www. ebf. eu) Number of banks (percentage) European Banking Law Assets (percentage) 12
Polish banking system - a brief overview (1) (all data hereinafter taken from FSA/NBP Reports of 2017) Type of bank Number of banks Share in total assets of the banking system (100%) State bank 1 ---- With dominant state capital (State Treasury) 5 23% With dominant (private) Polish capital 12 5% With dominant (private) foreign capital 26 61% 27 2% Affiliating banks 2 2% Ordinary banks 561 7% Domestic jointstock bank Branch of credit institution Cooperative banks European Banking Law 13
Polish banking system – a brief overview (2) European Banking Law 14
Polish banking system - a brief overview (3) THE BIG FIVE Assets of selected banks Strategic investor 1 PKO BP Powszechna Kasa Oszczędności 267 mld zl State Treasury 2 Pekao SA Polska Kasa Opieki 169 mld zl PZU 3 m. Bank 140 mld zl Commerzbank 4 ING Bank Śląski 123 mld zł ING Group 5 Bank Zachodni WBK (Santander Group) 109 mld zl Banco Santander Bank Gospodarstwa Krajowego 73 mld zl (state bank) The National Bank Of Poland (capital, reserves, receivables etc. ) 330 mld zl (central bank) European Banking Law 15
Universal and specialized banks Banking system Specialized bank; a bank which has been restrained in terms of: - Range of activity - Territory - Kinds of operations - Types of customers By virtue of law By founders’ decision Universal bank; a bank which is not restricted in its operations by any factor ( quantity, quality or objects / subjects of its activity) European Banking Law 16
Domestic and foreign banks Domestic bank Banking system Foreign bank Branch — an organisational unit of a credit institution / a foreign bank, which performs - on its behalf and for its benefit - all or some of the operations deriving from the authorisation granted to that bank, Branch Representative office Branch Credit institution Representative office Cross border activity Representative office – deals with advertising and promoting a foreign bank or a credit institution as it is stipulated in the authorisation Cross border activity - the performance by a credit institution in the Republic of Poland, or by a domestic bank in a host Member State, of all or some of the operations deriving from the authorisation granted to it, without the involvement of a branch of that institution or bank, European Banking Law 17
Establishment of state banks Minister for the State Treasury (a motion) • Owner – The State Treasury • Governing bodies – supervisory board and management board Financial Supervision Authority ------------------------- • The chairman of supervisory (an opinion) board is appointed and recalled by the Prime Minister The Council Of Ministers’ • The statute of the state bank is (a regulation) Indicates: the name, the registered office, the subject and the scope of the bank’s activity and its statutory funds. granted in a regulation by the Minister of the State Treasury European Banking Law 18
Establishment of a joint-stock bank Capital requirements Personal requirements Founders: Own funds adequate to the kinds of banking activity anticipated and the scale of operations intended, but no lower than 5 000 euro At least 3 legal persons Or at least 3 natural persons Or an other bank Cash contribution must be paid in Polish currency to a bank account opened in a domestic bank No more than 15% of initial capital may be contributed as in-kind contribution (equipement, real estate) The initial capital of bank cannot come from loans, credits or undocummented sources Requirements for founders and management board: Adequate guarantee of THE SOUND AND PRUDENT MANAGEMENT of the bank At least two of the persons proposed for members of the bank’s management board are ADEQUATELY EDUCATED AND HAVE PROFESSIONAL EXPERIENCE necessary to manage a bank, as well as a proven knowledge of the Polish language, European Banking Law 19
Special requirements THE BANKING LAW ACT, ARTICLE 22 B The Polish Financial Supervision Authority shall refuse approval for the appointment of the president of the management board and the member in charge of management of bank’s significant risk where such persons: • • have been convicted of intentional or fiscal offence, excluding the offences that are prosecuted upon private accusation, were responsible for documented losses at their places of employment or in connection with their functions as members of bodies of legal persons, have been prohibited from carrying out business activity on their own behalf or from performing functions of representatives or attorneys of an entrepreneur, members of supervisory boards or audit committees in a joint-stock company, limited company or cooperative, do not fulfil the requirements concerning the proven knowledge of the Polish language European Banking Law 20
The structure of a joint-stock bank General Meeting of Shareholders (a shareholder = an owner of the bank, with a right to vote and to a dividend) Supervisory Board (at least 5 people) Main tasks: supervision over managament board’s decisions European Banking Law Management Board (at least 3 people) Main tasks: Undertaking decisions, securing the bank’s interests, outward representation of a bank 21
Authorisation procedure for joint – stock and cooperative banks 1 • Founders’ apllication to the Financial Supervision Authority 7 2 • FSA: authorisation to establish the bank • Opening the bank (within max. 1 year after granting the 1 st licence – otherwise it expires by virtue of law) 6 • FSA: authorisation to start the bank’s activity 3 • Organizing the structure of a bank 5 • Managament Board: application to FSA 4 • Registration (aquiring legal personality) European Banking Law 22
Application’s requirements Article 31. 1. An application to the Polish Financial Supervision Authority for authorisation to establish a bank should include: • the bank's proposed name and registered office, • specification of banking operations for which the bank is to be authorised, and information on the objectives and scope of intended activity, • information on: a) the founders and persons proposed for members of the bank's management board, b) the bank's initial capital. 2. The application shall have appended thereto: • a draft of the bank's articles of association, • the bank's programme of operations and financial plan for at least the immediate three years, • the documents required by the Polish Financial Supervision Authority on the bank's founders and their financial situation European Banking Law 23
Refusing / granting the licence Article 37 The Polish Financial Supervision Authority shall refuse authorisation to establish the bank or approval for amendment of its articles of association where: (1) the requirements in force for the establishment of banks have not been fulfilled, (2) or where the activity intended by the bank would contravene the provisions of law or prejudice the interests of its customers, (3) or would not guarantee the safety of the funds held by the bank, (4) or where the provisions of law in force in the place where the founder’s registered office or residence is located, or their relations with other parties, could prevent the effective supervision of the bank. Article 36, p. 3 3. An authorisation to commence the business may be issued where it is determined that the bank: 1) is properly prepared in organisational terms to commence the business, 2) has assembled the full amount of initial capital, 3) is in possession of facilities suitable for the safekeeping of monetary funds and other valuables, taking into consideration the scope and kinds of banking activity to be conducted, 4) fulfils other conditions stipulated in the decision on granting the authorisation to establish the bank. European Banking Law 24
Cooperative banks Legal definition Cooperatives vs traditional banks Article 20 1. A cooperative bank is a bank which is a cooperative, to which the provisions of the Cooperative Act shall apply with regard to the matters which are not regulated under the “Act on the Operations of Cooperative Banks, their Affiliation, and Affiliating Banks”, of 7 December 2000 or under the present Act. 2. The articles of association of a cooperative bank, in order to be effective, shall be drawn up in the form of a notarial deed. Cooperative The bank Established to protect its members’ interests Entrepreneur / trader Financial profit is not necessary Financial profit determines bank’s activity All members hold equal The more shares you positions, no matter possess the bigger how many shares they impact you can enforce possess ( a dividend, number of votes at the General Meeting) Shares cannot be sold to anyone European Banking Law Shares can be traded / inherited 25
Establishment of cooperative banks Founders: at least 10 natural persons Obtaining licences from FSA Signing the association agreement with one of the AFFILIATING BANKS (which are the joint-stock companies; its shares are owned by co-operative banks) Initial capital: no less than 1 mln euro Premises + documents + registration European Banking Law 26
Co-opoerative banks – limits of their banking activity Funds Initial capital Banking services Territorial scope of Type of service Restrictions activity Cash loans, Consumer loans, Credits Only for customers residing , established or leading company in the area of a bank’s registered office Purchase and sale of foreign exchange, securities trading, financial advices By the consent of the affiliating bank Electronic money By the consent of FSA 1 000 euro Poviat 1 000 – Voivodenship 5 000 euro > 5 000 euro Whole country European Banking Law 27
Saving society / credit unions (SKOK) LEGAL STATUS: a cooperative, engaged in non-profit financial operations, perfomed in favour of its members ( e. g. people connected by some professional ties ) Statutory instruments of minimizing the risk of SKOK: • • • SCOPE OF SERVICES: Deposits Granting of loans and credits Settlement services • • The activities of credit unions is supervised by the Financial Supervision Authority on the same principles as operating banks SKOK is subject to guarantees of Banking Guarantee Fund • • The capital adequacy ratio more than 5% Total value of purchased assests cannot exceed equity of SKOK’s capital All the credits agreement must be concluded in writing Limit of loans and credits granted to one member - no more than 10% of the SKOK’s own funds Maximum limit of all receivables from business loans and business credits economic - no more than 150% of SKOK’s own funds Diversification of the allocation of available assets (in one bank no more than 8%) + New regulations for credit unions: License to establish a new SKOK Responsibilities same as for banks, among others - prevention of money laundering, verification procedure towards management and CEO of SKOK European Banking Law 28
Central bank Banking Law European Banking Law 29
Competences / features of the central bank The issue of money (monopoly on beating coins and printing banknotes) Ensuring the value and covertibility of a national currency Responsibilty for creating and pursuing monetary policy Faciliating settlements (the clearing system) between banks Domineering influence on commercial banks Cooperation with government in creating law and fiscal policy European Banking Law 30
Brief history of central banks 1668 Bank of Sweden 1694 Bank of England 1800 Bank of France 1814 Bank of Holland 1828 The Bank of Poland ( in Kingdom of Poland); after the fall of January Uprising it was transformed into the branch of The State Bank of Russia 1860 The State Bank of Russia 1913 Federal Reserve System, USA 1916 Polish National Loan Fund 1924 Bank of Poland ( throughout the WWII remained in the UK, then put into liquidation in 1951) 1945 The National Bank of Poland European Banking Law 31
The meaning of the Central Bank NBP 1945 - 1989 State monopoly in the sphere of public and private finances NBP after 1990 Combining two functions: of the central bank and of the principal financial institution (deposits, credits, loans) Currently NBP European System of Central Banks NBP Instruments of monetary policy Monobank The subordination of central bank to the government ( NBP’s budget, credit planning) In the Euro-Area Restrictions / prohibitions related to creating other banks and performing various banking activities Domestic banks European Banking Law European credit institutions 32
NBP in the Constitution of the Republic of Poland Article 227 1. The central bank of the State shall be the National Bank of Poland. It shall have the exclusive right to issue money as well as to formulate and implement monetary policy. The National Bank of Poland shall be responsible for the value of Polish currency. 2. The organs of the National Bank of Poland shall be: the President of the National Bank of Poland, the Council for Monetary Policy as well as the Board of the National Bank of Poland. 3. The Sejm, on request of the President of the Republic, shall appoint the President of the National Bank of Poland for a period of 6 years. 4. The President of the National Bank of Poland shall not belong to a political party, a trade union or perform public activities incompatible with the dignity of his office. 5. The Council for Monetary Policy shall be composed of the President of the National Bank of Poland, who shall preside over it, as well as persons distinguished by their knowledge of financial matters - appointed, in equal numbers, by the President of the Republic, the Sejm and the Senate for a period of 6 years. 6. The Council for Monetary Policy shall annually formulate the aims of monetary policy and present them to the Sejm at the same time as the submission of the Council of Ministers' draft Budget. Within 5 months following the end of the fiscal year, the Council for Monetary Policy shall submit to the Sejm a report on the achievement of the purposes of monetary policy. 7. The organization and principles of activity of the National Bank of Poland, as well as detailed principles for the appointment and dismissal of its organs, shall be specified by statute. European Banking Law 33
NBP - basic data The Act on The NBP, 1997 Article 1 The National Bank of Poland, hereinafter referred to as "the NBP", shall be the central bank of the Republic of Poland. Article 2 1. The NBP shall have legal personality and the right to use a seal bearing the national emblem. 2. The NBP shall not be subject to entry into the register of state enterprises. 3. The activity of the NBP shall be conducted on the territory of the Republic of Poland. 4. The seat of the NBP shall be Warsaw. q Exempted from taxes and fees q Foreign exchange immunity q Financial independence q Political independence q Excluded from the general government q Not a state-owned or a commercial bank European Banking Law 34
NBP vs. executive and legislative powers The NBP 1. MPC submits information on the annual monetary policy guidelines ( until 30 September), as well as the report on monetary policy implementation ( until 31 May) 2. The President of the NBP presents quarterly reports on the balance of payments and the annual statement on the international investment position, The Sejm 1. Constructing and defining the principles of organization and functioning of the NBP 2. Election of the President of the NBP and the MPC members The NBP 1. Colaboration with the competent State bodies with regard to developing and implementing the state’s economic policy 2. Transfering the NBP’s annual net profit to the state budget 3. Collecting foreign currency reserves to pay the public debt European Banking Law The Council of Ministers Constitution, Article 220 The Budget shall not provide for covering a budget deficit by way of contracting credit obligations to the State's central bank. 35
NBP: decisions-making bodies (1) President of the NBP Appointed and dismissed by the Sejm, at the request of the President of the Republic of Poland. • The term of office of the President of the NBP shall expire following a period of six years or in the event of his / her death, resignation, dissmisal (possible if he/she has been (1) unable to fulfil his/her duties due to prolonged illness (2) convicted of commiting a criminal offence under a legally binding court sentence, (3) submitted a vetting statement deemed false by court in a binding ruling, (4) the Tribunal of State has prohibited him/her from occupying managerial positions or holding posts of particular responsibility in state bodies). Monetary Policy Council (MPC) Composition: the Chairperson of the Council who shall be the President of the NBP and 9 members appointed in equal numbers by the President of the Republic of Poland, the Sejm and the Senate, from among specialists in the field of finance. • Terms of office: 6 years • During his/her term of office, a Council member shall not hold any other positions nor engage in profitgaining or public activity other than academic work, teaching or writing, although the Council may adopt a resolution (without the participation of the person concerned) expressing its consent for a member to engage in activities of international organisations. She / he must also suspend any activity in a political party or a trade union NBP Management Board Composition: the President of the NBP - as a Chairperson, and six to eight Board members, including two Vice Presidents of the NBP. European Banking Law 36
NBP: decisions-making bodies (2) President of the NBP Monetary Policy Council (MPC) Management Board • Is the superior of all NBP staff • Chairs the Monetary Policy Council, the NBP Management Board • Represents the NBP internationally • Represents the interests of the Republic of Poland within international banking institutions, and, unless the Council of Ministers decides otherwise, within international financial institutions. • Sets the annual monetary policy guidelines and submit them for the information of the Sejm • Decides upon and introduces the NBP’s instruments of monetary policy (e. g. requirement ratio, interest rates, open market operations) • Directs the NBP’s current affairs • Adopts the NBP’s financial plan and the plan of activity European Banking Law 37
What does the NBP aim at? Article 3 1. The basic objective of the activity of the NBP shall be to maintain price stability, while supporting the economic policy of the Government, insofar as this does not constrain the pursuit of the basic objective of the NBP. 2. The tasks of the NBP shall also include: 1) organising monetary clearing, 2) managing the foreign exchange reserves, 3) conducting foreign exchange activities within the bounds stipulated by statutes, 4) providing banking services to the state budget, 5) regulating the liquidity of the banks and providing them with refinancing facilities, 6) establishing the necessary conditions for the development of the banking system, 6 a) acting to sustain stability of Poland’s financial system, (. . ) 7) compiling the monetary and banking statistics, the balance of payments and international investment position, 8) performing other tasks as specified by statutes. Article 4 The NBP shall have the exclusive right to issue the currency of the Republic of Poland. European Banking Law 38
The NBP as the Bank of the State Securing the value of a national currency Ensuring global liquidity in the economy Development of monetary policy Banking operations in favour of the State (e. g. the central deposit account of Polish budget) Representing Poland in the international financial institutions (eg. International Monetary Fund, European Central Bank) European Banking Law 39
The NBP as the bank of issue Article 31 The currency of the Republic of Poland shall be banknotes and coins denominated in złoty and grosz. Article 32 Banknotes and coins issued by the NBP shall constitute legal tender on the territory of the Republic of Poland. Article 33 1. The design and denomination of banknotes, and the design, denomination, alloy, fineness and weight of coins, as well as the volume of issues of banknotes and coins, together with the dates on which they are to be brought into circulation, shall be specified by the President of the NBP by regulation. 2. The President of the NBP may withdraw particular banknotes and coins from circulation. As of the date set by the President of the NBP, such banknotes and coins shall cease to be legal tender on the territory of the Republic of Poland, and shall be subject to replacement at banks designated by the President of the NBP. Article 34 1. The banknotes and coins which do not fulfil the conditions set by the President of the NBP because of being worn or damaged, shall cease to be legal tender on the territory of the Republic of Poland shall be subject to replacement. 2. The President of the NBP shall specify, by regulation, the detailed principles and procedure for the replacement of banknotes and coins referred t o above Article 35 1. Counterfeit banknotes and coins shall be subject to forfeiture without compensation. 2. The provision of para. 1 shall apply accordingly to counterfeit banknotes and coins denominated in foreign currencies. 3. The President of the NBP shall specify, by regulation, the principles and procedure forfeiting banknotes and coins (the authenticity of which is suspect) and the procedure for handling counterfeit banknotes and coins. This regulation shall be agreed with the Minister of Justice and the minister competent for internal affairs. European Banking Law 40
The NBP as „the bank of banks” The instruments of monetary policy Indirect instruments (the NBP as a contracting partner) Interest rates Direct instruments (the NBP as a superior authority) Open market operations Mixed instruments Credit limits Required reserve system European Banking Law 41
Interest rates Credit agreement -Refinancing credit / loan -Lombard facilities (against pledge of securities) -Rediscount credit (with bills of exchange accepted by the NBP) The NBP The commercial bank Repayment of capital + interests + commission Commercial credit agreement All interest rates are set by MPC (NBP rate + inflation rate + trade margin) Clients European Banking Law 42
Open market operartions 1. Purchase of securities 2. Sale of securities 3. REPO ( repurchase agreement) 4. REVERSE REPO The NBP 1. Purchasing securities with immediate delivery (payment) 2. Reselling securities with delayed payment 1. Selling securities with immediate delivery (payment) 2. Repurchasin g securities with delayed payment Commercial bank 1 = NBP grants a credit 2= A bank repays the credit 1 = NBP opens an account for the bank 2= the bank withdraws an account European Banking Law 43
Credit limits Article 46 Should the implementation of monetary policy be jeopardised, the MPC may resolve to: 1) restrict the volume of funds granted to borrowers by banks, 2) require the holding of non-interest-bearing deposits with the NBP against foreign funds used by banks and domestic entrepreneurs. European Banking Law 44
Required reserve system (1) Article 38 For the purpose of influencing the money supply and lending activity, the NBP shall accumulate the required minimum reserves of the banks, credit unions and the National Credit Union. Article 39 1. The minimum reserve requirement ratio may vary according to contractual deposit maturity, the type of currency concerned, as well as the kind of conducted financial operations constituting the source of proceeds. 2. The total of the required minimum reserves shall not exceed: 1) 30% of the total funds (…) in the case of demand deposits, 2) 20% of the total funds (…) in the case of term deposits. 3. The NBP Management Board may exempt a bank, credit union and the National Credit Union from satisfying the minimum reserve requirement during the implementation of a rehabilitation programme. The NBP Payout the interest Article 39 a Banks, credit unions and the National Credit Union shall deduct from the amount of required minimum reserves the amount equivalent to 500, 000 euro (…) European Banking Law Payment of the required reserves (from the deposits held in a single bank) A commercial bank, a credit union The formula: 3. 50 % x deposits minus 500 000 euro 45
Required reserve system (2) Article 41 1. In case of violation of the minimum reserve requirement (…) the bank, the credit union (…) shall pay interest to the NBP on the difference between the balance it is required to hold on accounts and the balance actually held on accounts. 2. The interest referred to in para. 1 shall be calculated at a rate set by resolution of the NBP Management Board, which shall not be higher than twice the lombard rate. 3. The NBP Management Board may give its consent to a bank, a credit union or the National Credit Union not to pay the interest referred to in para. 1 if the bank, the credit union or the National Credit Union has had its operations suspended, is under liquidation or has been declared bankrupt. European Banking Law 46
BGK: Bank Gospodarstwa Krajowego • Established in 1924 • The only and only state – owned bank (as defined in the Banking Law Act) • Financial liquidity and own funds are guaranteed by the Minister of Finance. Main tasks: • Supporting government’s socioeconomic programs, as well as regional development projects (BGK is a central contributor of the European funds and is the intermediary in contacts with European Investment Bank) • Providing banking services for multiple goverment target funds e. g. Student Loans and Credit Fund, The Railway Fund, Technology Credits Fund) European Banking Law 47
Public guarantees (provided by BGK) A. Base contract CREDITOR DEBTOR B. Mandate contract: commitment to perform a guarantee in favour of a debtor for remuneration C. Entering into guarantee agreement D. Paying guaranteed sum (if necessary) with recourse CREDITOR = a commercial bank DEBTOR = an enterpreneur GUARANTOR = BGK or State Treasury, represented by the Minister of Finance GUARANTOR Guarantee can be provided if: • Base contract (A) refers to a public task / public service • The risk of the debtor’s insolvency was analyzed in advance • Value of guarantee doesn’t exceed limits depicted in the Budgetary Act and is less than 50% of credit capital and 50% of interest remained to be paid European Banking Law 48
European regulations concerning banks Banking Law European Banking Law 49
Principal goals of the EU banking law and the means of its application 1 2 3 Stability and security of the banking sector Pan-European market of banking services and free access guaranteed to all clients Safety and soundness regulation Single licence rule Home country control Mutual recognition Proper supervision over the banks European Banking Law 50
REGULATION (EU) No 575/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 26 June 2013 on prudential requirements for credit institutions and investment firms Content Other regulations • Definitions of a bank, financial and credit institution • Rules of authorisation the banking activity • Rules and measures of prudential supervision • General criteria and methodologies used in the review and evaluation of financial institution • Exchange of information on credit institution (transparency) • Treaty on the functioning of EU (general principles of economic activity on the internal market) • REGULATION (EU) No 1093 /2010 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority) • DIRECTIVE 2013/36/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, • + domestic provisions ( mutual recognition of these rules and its judical interpretation) European Banking Law 51
The goals of CRD / CRR …. Taken from the preamble: • In order to make it easier to take up and pursue the business of credit institutions, it was necessary to eliminate the most obstructive differences between the laws of the Member States as regards the rules to which these institutions are subject. • Equivalent financial requirements for credit institutions are necessary to ensure similar safeguards for savers and fair conditions of competition between comparable groups of credit institutions. • In order to prevent distortions of competition and to strengthen the banking system in the internal market, it was appropriate to lay down common minimum capital requirements. • The Member States should be able to refuse or withdraw banking authorisation in the case of certain group structures considered inappropriate for carrying on banking activities, in particular because such structures could not be supervised effectively. In this respect the competent authorities should have the necessary powers to ensure the sound and prudent management of credit institutions. European Banking Law 52
EU banking law: financial institution vs credit institution Financial institution Credit institution an undertaking other than a credit institution, the principal activity of which is to acquire holdings or to carry such activities as: an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account • • • lending (consumer credit, mortgage credit), financial leasing, issuing and administering means of payment (e. g. credit cards) guarantees and commitments (sureties), advice on undertakings related to: capital structure, industrial strategy and related questions, trading in foreign exchange and other financial instruments European Banking Law 53
PL banking law: financial institution vs credit institution Financial institution Credit institution An undertaking other than a bank or credit institution, whose basic activity generating most of its income consists in business activity involving: an undertaking having its registered office outside the Republic of Poland, in one of the Member States of the European Union, (…) which, acting on its own behalf and for its own account, on the basis of authorisation by the competent supervisory authorities, carries out the business of receiving deposits or other funds entrusted to it, which are in any way repayable, and of extending loans, or of issuing electronic money a) acquiring and disposing equities and shares, b) extending internally funded loans, c) making assets available under leasing contracts, d) providing services relating to the acquisition and disposal of claims, e) providing payment services under the provisions f) issuing and administering payment instruments g) extending guarantees or sureties, h) trading, for its own account or that of another natural or legal person, or an organisational unit without legal personality yet having legal capacity, in: — financial forward transactions, — money market instruments, — securities, k) providing financial advice services, including investment advice, European Banking Law 54
Single licence rule – a scheme Granting a licence in any EU country (i. e. home country) …. enables to run the banking business all over the EU ( using a branch / representative office or by the cross-border activity) (1) under the same name, (2) with respect to equal treatment of all credit institution on the internal market (3) being subject to banking regulations of home country European Banking Law 55
Expanding the banking activity Unless the competent authorities of the home Member State have reason to doubt the adequacy of the administrative structure or the financial situation of the credit institution, taking into account the activities envisaged, they shall within three months of receipt of the information communicate that information to the competent authorities of the host Member State and shall inform the credit institution accordingly. A credit institution wishing to establish a branch within the territory of another Member State shall notify the competent authorities of its home Member State. European Banking Law 56
Single licence rule – prerequisites (1) Capital requirements • • Personal requirements separate own funds, initial capital is more than EUR 5 million, (but the Member States may grant authorisation to particular categories of credit institutions under condition that: • the initial capital shall be no less than EUR 1 milion • the Member States concerned shall notify the Commission of their reasons for exercising this option • the name of each credit institution that does not have the minimum capital shall be annotated on the list in the Official Journal of the European Union) + remuneration brackets • • • „Four eye principle” – for the management, „Suitability” – for the shareholders who have qualifying holdings ( at least 10%) The competent authorities shall grant an authorisation to the credit institution only when there at least two persons who effectively direct the business of the credit institution. Members of the management body shall at all times be of sufficiently good repute and possess sufficient knowledge, skills and experience to perform their duties. The overall composition of the management body shall reflect an adequately broad range of experiences All members of the management body shall commit sufficient time to perform their functions in the institution. The number of directorships which may be held by a member of the management body at the same time shall take into account individual circumstances and the nature, scale and complexity of the institution's activities. European Banking Law 57
Single licence rule – prerequisites (2) Head office requirements Each Member State shall require that: (a) any credit institution which is a legal person and which, under its national law, has a registered office shall have its head office in the same Member State as its registered office; (b) any other credit institution shall have its head office in the Member State which granted its authorisation and in which it actually carries on its business. Supervision requirements The competent authorities shall refuse authorisation to commence the activity of a credit institution unless a credit institution has informed them of the identities of its shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings and of the amounts of those holdings or, where there are no qualifying holdings, of the 20 largest shareholders or members. Where close links exist between the credit institution and other natural or legal persons, the competent authorities shall grant authorisation only if those links do not prevent the effective exercise of their supervisory functions. ( ‘close links’ means a situation in which two or more natural or legal persons are linked in any of the following ways: (a) participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an undertaking; (b) control; (c) the fact that both or all are permanently linked to one and the same third person by a control relationship) European Banking Law 58
Withdrawal of the licence The competent authorities may withdraw the authorisation granted to a credit institution only where such an institution: (a) does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased to engage in business for more than six months, if the Member State concerned has made no provision for the authorisation to lapse in such cases; (b) has obtained the authorisation through false statements or any other irregular means; (c) no longer fulfils the conditions under which authorisation was granted; (d) no longer possesses sufficient own funds or can no longer be relied on to fulfil its obligations towards its creditors, and in particular no longer provides security for the assets entrusted to it; (e) falls within one of the other cases where national law provides for withdrawal of authorisation. European Banking Law 59
Home country control 1 2 3 • An entrepreneur from the EU wants to open a credit institution within the territory of EU • Granting authorisation • (single licence rule) • Legal system of this country which has given him a licence remains valid in terms of material and procedural rules of supervison • (HOME COUNTRY CONTROL) European Banking Law 4 • The same rules apllied if an entrepreneur from a third country wants to expands his business onto EU: this Member State in which he obtains a proper licence becomes superior in terms of supervison (HOST COUNTRY CONTROL) 60
PL banking law: international banking activity (1) Article 39 1. (…) The establishment of a bank abroad by a domestic bank, and the establishment of a branch of a domestic bank abroad, shall require authorisation from the Polish Financial Supervision Authority. Article 48 c 1. A domestic bank that intends to establish a branch in a host Member State shall give a written notification of this fact to the Polish Financial Supervision Authority. 4. Within 3 months of receiving the notification (…), the Polish Financial Supervision Authority shall send a notification to the competent supervisory authorities of the host Member State together with information on the level of the own funds and the capital solvency ratio of the bank intending to establish the branch. European Banking Law 61
PL banking law: international banking activity (2) (Article 40) 1. The establishment of a branch of a foreign bank in Poland shall take place on the basis of an authorisation granted by the Polish Financial Supervision Authority and issued after consultations with the minister competent for financial institutions, following an application from the bank concerned. 5. Branches of foreign banks shall be subject to entry in the business register. (Article 41) Branches of foreign banks operating in the Republic of Poland shall be governed by the provisions of Polish law. (Article 40 a) A branch of a foreign bank shall be required to: (1) use the business name of that foreign bank in the language of the country where it has its registered office, together with a designation of the legal status of the bank translated into Polish, supplemented with the words “oddział w Polsce” [“branch in Poland”], (2) maintain separate accounts in the Polish language, in accordance with the regulations binding on Polish banks, (3) operate pursuant to the approved byelaws, (4) store all documents concerning its activities at the registered office of the branch. European Banking Law 62
European System of Central Banks Data European Central Bank, Established in 1998 Central Banks of Member States Powers (Treaty, art. 127) European System of Central Banks The primary objective of the European System of Central Banks shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119. European Banking Law 63
European Central Bank in the Treaty Independence Issue of Money Article 127 Overdraft facilities or any other type of credit facility with the European Central Bank or national central banks in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments. Article 128 Article 130 When exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body. The European Central Bank shall have the exclusive right to authorise the issue of euro banknotes within the Union. The European Central Bank and the national central banks may issue such notes. The banknotes issued by the European Central Bank and the national central banks shall be the only such notes to have the status of legal European Banking Law 64
Towards Banking Union: SSM (single supervisory mechanism) • • Introduced in 2014 Established as „a response to the lessons learnt in the financial crisis” Based on commonly agreed principles and standards. Performed by the ECB in cooperation with the European Banking Authority (EBA), the European Parliament, the Eurogroup, the European Commission, and the European Systemic Risk Board (ESRB), within their respective mandates, and is mindful of cooperation with National Competent Authorities (NCA) The SSM’s three main objectives are to: q ensure the safety and soundness of the European banking system; q increase financial integration and stability; q ensure consistent supervision, especially towards Systemically Important Banks (SIB) European Banking Law 65
The functioning of the SSM A credit institution will be considered significant if any one of the following conditions is met: • • the total value of its assets exceeds € 30 billion or – unless the total value of its assets is below € 5 billion – exceeds 20% of national GDP; it is one of the three most significant credit institutions established in a Member State; it is a recipient of direct assistance from the European Stability Mechanism; the total value of its assets exceeds € 5 billion and the ratio of its cross-border assets/liabilities in more than one other participating Member State to its total assets/liabilities is above 20% Notwithstanding the fulfilment of these criteria, the SSM may declare an institution significant to ensure the consistent application of high-quality supervisory standards The ECB has the power to grant and withdraw the authorisation of any credit institution and to assess the acquisition of holdings in credit institutions in the euro area. This is done jointly with the NCAs. The ECB also must ensure compliance with EU banking rules and the EBA regulation and applies the single rulebook. Where appropriate, it may also consider imposing additional prudential requirements on credit institutions in order to safeguard financial stability Apart from the documents’ research, analysis and evaluations, the SSM carries out on-site inspections, i. e. in-depth investigations of risks, risk controls and governance with a predefined scope and time frame at the premises of a credit institution European Banking Law 66
Sanctions imposed by the means of SSM If regulatory requirements have been breached, the supervisor may impose sanctions on credit institutions and/or their management. The ECB may impose administrative pecuniary penalties on credit institutions of up to twice the amount of the profits gained or losses avoided because of the breach where those can be determined, or up to 10% of the total annual turnover in the preceding business year. In addition, in the case of a breach of a supervisory decision or regulation of the ECB, the ECB may impose a periodic penalty payment with a view to compelling the persons concerned to comply with the prior supervisory decision or regulation of the ECB. The Enforcement and Sanctions Division is also responsible for processing reports of breaches of relevant EU law by credit institutions or competent authorities (including the ECB) in the participating Member States. The ECB has established a reporting mechanism in order to encourage and enable persons with knowledge of potential breaches of relevant EU law by supervised entities and competent authorities to report such breaches to the ECB. Such reports on violations are an effective tool for bringing incidents of business misconduct to light. European Banking Law 67
Single Resolution Mechanism (SRM) / European Stability Mechanism The Single Resolution Mechanism (SRM) is set to centralise key competences and resources for managing the failure of any credit institution in the participating Member States. • • • It will ensure that if a bank subject to the SSM faces serious difficulties, its resolution can be managed efficiently with minimal costs to taxpayers and the real economy. The resolution authorities, the ECB and NCAs will inform each other without undue delay on the situation of the credit institution in crisis and discuss how to effectively address any related issues. The SSM will assist the SRM in reviewing the resolution plans, with a view to avoiding a duplication of tasks With the establishment of the SRM, the European Stability Mechanism (ESM) is able to recapitalise institutions directly • • • The credit institution would have to be – or be likely to be in the near future – unable to meet the capital requirements established by the ECB in its capacity as supervisor, and the institution must pose a serious threat to the financial stability of the euro area as a whole or of its Member States). If an ailing credit institution that is directly supervised by the ECB needs to be recapitalised, the ECB will be responsible for compiling the necessary information. The ECB will also actively participate in the negotiations with the ESM and the management of the ailing credit institution regarding the terms and conditions of the recapitalisation agreement. European Banking Law 68
The European Investment Bank Data Goals (from the Treaty, art. 309) The task of the European Investment Bank shall be to contribute, by having recourse to the capital market and utilising its own resources, to the balanced and steady development of the internal market in the interest of the Union. For this purpose the Bank shall, operating on a non-profitmaking basis, grant loans and give guarantees which facilitate the financing of the following projects in all sectors of the economy: (a) projects for developing less-developed regions; (b) projects for modernising or converting undertakings (…. ) where these projects are of such a size or nature that they cannot be entirely financed by the various means available in the individual Member States; (c) projects of common interest to several Member States which are of such a size or nature that they cannot be entirely financed by the various means available in the individual Member States. • Established in 1958 • Registered office: Luxembourg • The European Investment Bank has legal personality. • The members of the European Investment Bank are the Member States. European Banking Law 69
How does the bank operate? Principles of functioning Banking Law European Banking Law 70
The catalogue of rules regarding banks’ functioning 1 • Universalism 2 • Self - dependence 3 • Financial autonomy 4 • Security European Banking Law 71
Universalism In terms of banking operations • A bank may perform any business operation and transaction, unless law or FSA’s authority stipulate otherwise In terms of banking law • Each bank must observe legal rules; they are common and general towards all types of banks European Banking Law 72
Self - dependence Examples Trading network Financial decisions Scope of activity Form of activity Business partners Limitations 1. Each bank is controlled by Financial Supervision Authorithy in terms of legality and security 2. There are various instruments of monetary policy linking each bank with the central bank 3. Not everyone may be appointed to a Board ( next page) European Banking Law 73
Verification of the Board made by FSA (Article 22 b) The appointment of two management board members of the bank is made subject to the FSA’ s consent REFUSES CONSENT if FSA the person…. . was CONVICTED of an intentional offence or a fiscal offence (with the exceptions of offences under a private prosecution) CAUSED DOCUMENTED LOSSES in the workplace European Banking Law FSA MAY REFUSE to grant consent to the appointment if criminal proceedings are pending against an individual is a subject to A COURT ORDER FORBIDDING the performance of commercial activity or acting as a proxy 74
Overview of the bank’s finances Incomes / revenues Outlays / expenditures Bank’s own funds Funds entrusted by clients Money made on securities dealing (shares, treasury bills) Commissions, provisions and other fees Credits taken from the NBP Dividends Interest CIT Central bank’s required reserve The Bank Guarantee Fund’s premium European Banking Law 75
Financial autonomy (as regarded by the Banking Law Act) Article 129 • Banks conduct their finances independently on the basis of a financial plan, in a manner ensuring that obtained income covers the costs of activity and other obligations The bank is obliged to maintain: Its own funds in an amount not less the PLN equivalent of 5 mln euro (…) European Banking Law A solvency ratio of at least 8%, and for the bank commencing its activity at least 15% during the first 12 months of activity Financial liquidity adjusted to the scale and type of activity, in a way that ensures the performance of all monetary obligations in accordance with their due payments 76
Levels of security Inner security Internal control system + audit Risk management system Instruments of security Outer security Financial Supervision Authority Legal rules (as determined in the Banking Law Act) Banking secrecy European Banking Law The Bank Guarantee Fund Counteracting money laundering 77
Inner security Procedure Goals (aims) Risk management system Identyfying, measuring, monitoring risk occuring in the bank’s activity Internal control system Ensuring : 1. efficiency of the bank’s operations 2. creditibility of finacial reporting 3. compliance of bank’s operations with the provisions of law and internal regulations Internal audit Studying and assesing the adequacy and effectiveness of the internal control European Banking Law 78
Banking secrecy General remarks WHAT IS IT? Prohibition of revealing confidentional information obtained by the bank from its clients WHO IS SUBJECT TO IT? The bank ( as an institution), its employees, and anyone through which the bank undertakes its operations (proxies, barristers, solicitors) WHAT IS SUBJECT TO IT? All information regarding a banking deed, whether obtained in the course of negociations or during the conclusion or performance of an agreement CAN THERE BE A LEGAL DISCLOSURE? HOW ABOUT SANCTIONS? These information can be revealed : -at the demand of the FSA, courts, public prosecutors, the General Inspector of Financial Information, the Internal Security Agency, the Central Anticorruption Bureau, the Border Guard, the Foreign Intelligence Agency (…) -at the demand of the National Bank of Poland, in connection with performing inspection and collecting necessary data -to other banks and financial institutions, as far as it is necessary to perform common banking acts Anyone who, while obliged to keep banking secrecy, reveals or uses information subject to this secrecy in breach with authorisation indicated in the Banking Law Act, is subject to a fine of up to 1 mln PLN and imprisonment European Banking Law 79 up to 3 years.
Banking secrecy Being a client, you should remember that: Article 104 par. 3 • Banks are not bound by banking secrecy towards the entity that the information concerns. • The information may be revealed to third parties only when the entity that the information concers authorises the bank in writing to reveal specified information to an indicated person or organisational unit European Banking Law 80
Money laundering Regulations The Banking Law Act (Art. 106) The Criminal Code ( Art. 299) The bank is obliged to counteract the use of its banking activity for purposes connected with crimes referred to in Article 299 of the Criminal Code (1) Who, being an employee or acting on behalf of the bank…. (2) …. . receives and records transaction on financial instruments, securities, foreign currency values, (3) …… in circumstances making reasonable suspictions that these means of payment come from benefits of an offence, (4) …… or provides other services to hide their origins, (5) ……… shall be punished by imprisonment from 6 months to 8 years. European Banking Law 81
Money laundering Procedures 3. Information on (2), if there any suspicions concerning money laudering BANK GENERAL INSPECTOR OF FINANCIAL INFORMATION 4. Stop order and / or amounts frozen on account 2. Recording the payment exceeding 150 euro 5. Official notice on (4) 1. Identification of the payer PUBLIC PROSECUTOR CLIENT 6. Opening an investigation European Banking Law 82
Credit agreement Banking Law European Banking Law 83
Concept of the contract Billateral duties Freedom of contracting A lender must: Make available for the borrower a certain amount of funds A borrower must: 1. Apply these funds according to conditions laid down in an agreement ( i. e. he / she must utilise them for a specified purpose) 2. Repay the credit with interest and comission The Civil Code, art. 353 (1) „ Parties executing a contract may arrange their legal relationship at their discretion as long as the content or purpose of this contract is not contrary to the nature of the relationship, the law and the principles of community life” European Banking Law 84
Credit agreement versus cash loan Credit agreement Cash loan The Banking Act of 1997 Source of law The Civil Code of 1964 Bank Who can extend / offer / grant a credit / a loan? Everyone who has capacity for legal acts (not to be confused with legal capacity) Specific amount of money What is a matter of this contract? Specific amount of money or fungibles Writing form What is a required form of the contract? Documented form unless its value is less than 1000 zlotys In the hands of a lender ( a borrower is given these funds at his / her disposal only) What happens to money ownership? Transferred to a borrower Returnable, pecuniary, always with purpose stipulated by the parties Other features of the contract Not every cash loan must be tied Cash loan may be interest - free European Banking Law 85
Terms of credit Personal terms Financial terms The parties to the agreement The scope of rights of the bank connected with supervising the use and the repayment of credit The amount and currency of the credit The principles and deadlines for the repayment The interest rate (and conditions for the amendment thereof) Other terms The purpose for which the credit is granted The conditions of amending and terminating the agreement Collateral to be provided European Banking Law 86
Credit agreement. The parties A lender A borrower 1. A bank ( in the meaning of the Banking Law Act) 2. Credit unions or other entities having statutory rights to perform banking activities 1. A natural person 2. A legal person 3. An entity with no legal personality… …. all of them having creditworthiness. In order to provide a joint credit banks may conclude a loan underwriting agreement. These banks shall bear the risk associated with granted credit in proportion to the amount of funds contributed to the loan. If someone fails to be deemed creditworthy, a bank may grant a credit providing : (1) a special collateral (2) a financial recovery programme European Banking Law 87
Credit procedures 1. Client’s application 6. Monitoring the contract’s execution 2. Screening (verification of this application) 5. Signing the agreement European Banking Law 3. Scoring (evaluation / rating) 4. Bank’s decision 88
Costs of credit 1. Repayment of credit 2. Interest 3. Commission Timeline of repayment (instalments) Remuneration for using someone else’s capital Payment for faciliating /entering into a transaction FORMULA: UNPAID CAPITAL x Fixed RATE (or X Floating RATE) FORMULA: CONSTANT (Full) CAPITAL x Fixed Rate Technique of repayment Payment holiday? The commission is due to be paid together with the first tranche Can you repay the credit before due date? European Banking Law 89
Credit ceiling Interest Concentration limit The Civil Code, art. 359 The Banking Law Act, art. 71 § 1. Interest on a sum of money is due only if it follows from a legal act or the law, a court decision or a decision of another competent authority. § 2. If the amount of interest is not otherwise determined, statutory interest shall be due in the amount equal to the sum of the reference rate of the National Bank of Poland 3. 5 percentage points. § 2/ 1. The maximum amount of interest resulting from a legal act may not exceed twice the statutory interest rate (maximum interest) per annum. § 2/ 2 If the interest resulting from a legal act exceeds the maximum interest, the maximum interest is due. § 2 / 3 Contractual provisions cannot exclude or limit provisions on maximum interest even if foreign law jurisdiction is chosen. In such case, the provisions of the law apply. • • • The total amount of a bank’s claims – offbalance sheet commitments and shares or participations held by the bank directly or indirectly in another entity (…. ) may not exceed the exposure concentration limit which amounts to 25% of the bank’s own funds. The bank's exposure towards another domestic bank, credit institution, foreign bank or a group of entities linked by capital or organisation structure, comprising at least one domestic bank, credit institution or foreign bank may not exceed 25% of the bank's own funds or the equivalent of EUR 150 milion zlotys depending on which of the amounts is higher; The aggregate amount of exposures towards all linked entities in the group which are not a domestic bank, credit institution or foreign bank may not exceed 25% of the bank's own funds. European Banking Law 90
Collaterals: suretyship contract Concept of the contract Surety’s liability The Civil Code, art. 876 (1) By a suretyship contract, the surety commits to the creditor to perform the obligation if the debtor does not perform it. The Civil Code, art. 879 (1) The scope of the surety’s obligation is determined each time by the scope of the debtor’s obligation. (2) However, a legal act taken by a debtor with a creditor after the suretyship is given cannot increase the surety’s obligation (2) The surety’s declaration should be made in writing; otherwise it is invalid. The Civil Code, Art. 881 In the absence of stipulation to the contrary, the surety is liable as a joint co –debtor European Banking Law 91
Collaterals: bank guarantee A. Credit agreement A LENDER (the beneficiary of a guarantee) A BORROWER B. Mandate contract: the commitment to perform a guarantee in favour of a borrower for remuneration C. Entering into guarantee agreement D. Payment order (from a lender) E. Covering guaranteed sum (by a guarantor) F. Recourse (to a borrower) A GUARANTOR BANK European Banking Law 92
Bank guarantee The Banking Law Act, art. 81 A bank guarantee constitutes a unilateral obligation of the guarantor bank, that after given payment conditions have been met by the authorised entity ( the beneficiary of the guarantee), where the conditions may be confirmed by specific documents that the beneficiary attaches to the payment order and where the order has been prepared in the required form, …. the bank will provide money consideration to the guarantee beneficiary – directly or through the intermediation of another bank. European Banking Law 93
Collaterals: mortgage and pledge (lien) Similarities (1) (2) (3) Differences Both mortgage and pledge „follow the property they charge” i. e. every new owner of such property will be a debtor to the original creditor. They give priority to creditors; whenever they want to satisfy their claims, they will be first to do so, ahead of other creditors. They give a right to take possession of certain property of a debtor in the event of non-payment of the debt on its due date Mortage Pledge (Lien) A charge of real properties A charge of movable properties Is established by an the entry to the pledge land register (run by the district court) European Banking Law 94
Various types of credits Crediting time Short – term credit Repayment period (spot credit) Intermediate credit Long- term credit (extended credit) European Banking Law Closed – end credit Deferred credit Past – due credit (dead credit) 95
Student’s credit Parties BGK or authorized banks vs a student (no more than 25 years of age at the beginning of his / her studies) Time 6 years (master’s degree) or 4 years (PHd degree) Amount of credit Maximum 6 times average salary year Tranches Monthly, from October to July Interest Maximum 50% of the NBP’s rediscount rate Instalments Twice as the number of tranches Repayment starts two years after studies Single instalment cannot be higher than 20% of ex-student’s monthly income Privileges Within 2 years after studies interest must be repaid by the Students’ Credit Fund (with no later recourse) Credit can be remitted in 20% if a borrower was one of the best students at his / her university Repayment can be waived in the event of a difficult financial situation of a borrower European Banking Law 96
Banking accounts Banking Law European Banking Law 97
Whan can you do with your account? Open an account Deposit money on account Make payment orders Close an account Check the balance of account Transfer money from account Withdraw money from account European Banking Law 98
The Civil Code regulation Article 725 The parties to the contract By a bank account contract, a bank commits to a bank account holder, for a fixed or a non – fixed term, to keep his/her cash and, if contract so provides, to carry out, on his / her instructions, money settlements European Banking Law Bank -----------Credit union / Other financial instituition – only if authorized so by a statute Account holder A) To be the party to the contract - must have legal capacity B) To enter into agreement – must have full capacity for legal acts 99
Terms of agreement General terms • The parties to the agreement • The type of account • The currency of account • The duration of the agreement Financial issues • The rate of interest, if the contract provides so • The amount of commission and fees for acts connected with performing an agreement Money settlements • The form and scope of money settlements conducted upon the order of the account holder • The amount of damages for exceeding the deadline for performing these orders European Banking Law 100
The bank is obliged…. : Remember! 1. To accept cash payment to the account 2. To keep the cash 3. To make disbursements upon client’s order 4. To carry out money settlements 5. To send statements about changes on the account 6. To exercise due diligence in ensuring the safety The bank may refuse to carry out your order in case of: - a term account amounts frozen on account overdraft exceeding the ATM payout limit European Banking Law 101
Account holder is obliged …. . : (address information) • …. to notify the bank of each change in his / her place of residence or registered office (report on mistakes) • … to report to the bank any inaccuracy in the changes on the account or the balance within 14 days of receiving the account statement (usage of the account) • (from Tax Ordinance): Non – cash payment of taxes should be made by taxpayers conducting business activity (except for small taxpayers and all taxes disconnected with business) European Banking Law 102
Through notice by either party ------Dissolution at both parties’ consent European Banking Law Any contract By lapse of time Non –fixed term contract Fixed term contract Termination of the contract By virtue of law: Unless the contract indicates otherwise, the agreement is terminated when: (a) within two years there has been no turnover on the account (b) total resources accumulated on the account do not exceed the minimum indicated in the agreement 103
Types of accounts Savings account Time savings deposit account Transactional account For natural persons YES NO For legal persons and entrepreneurs NO NO YES Demand deposit YES NO YES Term deposit NO YES NO Legal privileges for a holder YES NO European Banking Law 104
Savings accounts / Time saving deposit account. Three privileges for the holder. 1 Money on the account are free from court or administrative seizure up to three average monthly salaries 2 In the event of the death of a holder, the bank is obliged to refund funeral expenses to the person presenting receipts confirming the amount of expenses borne by him / her 3 Yet alive the holder has right to make a disposal of a given sum ( up to twenty times average monthly salary) to his / her spouse, ascendants, descendants, siblings. This order will be performed by the bank following the death of a holder; moreover, this disposal will not become part of the inhertitance of the account holder European Banking Law 105
Instruction concerning the deposit in the event of death. Article 56 1. A holder of a savings account, personal account or time deposit savings account may instruct a bank in writing to pay out a specified sum from the account to parties indicated by the said holder: a spouse, ascendants, descendants or siblings after his death 2. The sum of payment referred to in para. 1, irrespective of the number of instructions issued, shall not be greater than twenty times the average monthly salary in the corporate sector, exclusive of profit-sharing bonuses, as reported by the President of the Central Statistical Office in relation to the last month prior to the death of the account holder. 3. The instruction concerning the deposit in the event of death may be amended or revoked in writing by the account holder at any time. 4. Where the account holder has issued more than one instruction concerning the deposit in the event of death and the sum total indicated in the instructions exceeds the limit referred to in para. 2, instructions issued later shall take precedence over those issued earlier. 5. The amount paid out pursuant to para. 1 shall not be included in the estate of the deceased account holder. 6. Parties to whom sums have been paid out pursuant to instructions concerning the deposit in the event of death in breach of para. 4 shall be required to return them to the heirs of the account holder. European Banking Law 106
Fiduciary account / Trust account A scheme Account holder ( a trustee) Bank Fiduciary account Trust relation Third party How can this account be used? Situation A: A trustee is authorized by the third party to manage and invest his / her money. To separate this sum from other assets a fiduciary account is opened. Situation B: A trustee is a creditor to the third party (a debtor). In order to secure receivables a fiduciary account is opened and – if the commitment is not fulfilled by a debtor – a trustee can take control over fiduciary account. European Banking Law 107
Money settlements (clearances) Banking Law European Banking Law 108
Definition / scheme Clearance = a banking operation that effects in changes on a balance account. 1 • You must be an account holder 2 • You can make a note / an order to your bank It may result from: • A holder’s demand, • A bank’s initiative, • Authorized third person’s demand (e. g a bailiff) • 4 • You and the beneficiary should be given information on balance changes 3 • Your bank should transfer money to an account indicated by you The law itself European Banking Law 109
Main types of clearances Money settlements GIRO CHEQUE Non – cash (cashless) clearances TRANSFER NOTE (EU: CREDIT TRANSFER) PAYMENT ORDER (EU: DIRECT DEBIT) PAYMENT CARD CASH PAYMENT Cash clearances OPEN CHEQUE European Banking Law 110
A cheque What does a cheque consist in? 1. There is an obligation link between a debtor and a creditor stemming from any contract. 2. The debtor wants to use a cheque to meet his liabilities 3. The debtor – a drawer orders the bank to charge his / her account with the amount to which the cheque has been drawn and: Bank (a drawee) Debtor (a drawer) Creditor (a bearer of the cheque) a. (OPEN CHEQUE) …. to disburse that amount to a bearer b. (GIRO CHEQUE) …… to credit the account of a bearer with that amount 4. A bank plays a role of an intermediary that enables the whole operation. European Banking Law 111
Transfer note 3. Transfer of funds into account CREDITOR’S BANK DEBTOR’S BANK 4. Crediting a creditor’s account 2. Charging a debtor’s account 5. Statement on balance of an account 1. Making a note A CREDITOR A DEBTOR European Banking Law 112
Payment order 2. Handing over an order DEBTOR’S BANK CREDITOR’S BANK 4. Sending information about (3) and providing sufficient financial resources for (5) 5. Crediting a creditor’s account 3. Charging a debtor’s account 1. Making an order A CREDITOR A DEBTOR European Banking Law 113
Payment order – legal conditions 1 The use of payment order should be concluded in two separate agreements: (a) between a creditor and his/ her bank (b) between a creditor’s bank and a debtor’s bank 2 There must be a consent granted by a debtor to a creditor. This consent allows to charge a debtor’s account through a payment order. This order must arise out of definied obligations in their payment deadlines 3 Maximum amount of a single payment order should not exceed the equivalent of: (a) 1000 euro – concerning a debtor who is a natural pesron not conducting commercial activity (b) 50 000 euro – concerning other debtors European Banking Law 114
How to cancel a payment order? 4. Sending information about (3 a – 3 b) CREDITOR’S BANK DEBTOR BANK 6. Transfer of money as a compensation 5. Charging a creditor’s account 3 B. Crediting a debtor’s account 3 A. Cancelling a payment order A CREDITOR A DEBTOR European Banking Law 115
Payment card 1. A contract By the contract for payment card, • the issuer of a payment card commits himself towards the holder of a payment card to settle the operations performed by the means of a payment card • the holder commits himself to pay the amounts of operations together with charges and commission fees due to the issuer The contract shall be concluded for a definite period of time. If the parties do not fix its duration, the contract shall be considered as signed for a period of two years The issuer ( a bank / financial institution, which makes clearances available) The holder ( a natural person, who has to pay his / her obligations and additional fees for using a payment card) European Banking Law 116
Payment card 2. Clearance • I must charge a holder’s account with the amount of transaction. Once a month I must send information to the NBP on all transactions made by means of our cards • If everything’s OK, I will authorize transaction and cover expenses. Then I’ll send a debit note to the issuer • I want to make payment by my payment card ISSUER CARDHOLDER SETTLEMENT AGENT ACCEPTOR / MERCHANT • I have to check if your card can be accepted European Banking Law 117
Payment card 3. The position of parties An issuer A holder / a user 1. Is the owner of a card issued by him 2. Is obliged to: • • • …. is obliged to: receive 24 hours a day notifications of the holders on lost or destroyed payment cards, provide a holder with a statement of operations ( at least once per month), introduce the procedures for establishing the identification code (PIN) in order to prevent unauthorized person from finding out the codes. • • store the payment card and protect PIN with due care, not keep the payment card together with its PIN, notify the issuer without delay about the lost or destroyed payment cards, not make available the payment card and PIN to unauthorized persons. European Banking Law 118
Payment card 4. Are you liable for the operations performed…… (1) through your deliberate fault, (1) as a consequence of defective execution by the issuer (2) by persons to whom you have (2) if the card was used without made available the card or have electronic identification or his signature disclosed PIN, (3) by means of a lost card till the time of notyifing the issuer and up to the amount equivalent of 150 euro. ( REMEMBER: the use of PIN is not sufficient to charge the holder with an operation contested by him / her, unless a safe electronic signature has been put) European Banking Law 119
Payment card 5. Types of cards Cards with a debit function Function Cards with a credit function Delayed debit cards (charge cards) Outlook • Card with magnetic stripe • Card with chip • Virtual card European Banking Law 120
SEPA (Single Euro Payment Area) Framework Standards The Single European Payments Area (SEPA) aims to harmonise and integrate payment markets across Europe, with one set of euro payment instruments: credit transfers, direct debits and payment card, common standards and practices and a harmonised legal basis. SEPA covers more than 520 million people in the 28 EU Member States and six non-EU countries (Iceland, Liechtenstein, Monaco, Norway, San Marino and Switzerland). By: www. ebf. eu 1. 2. 3. 4. 5. All the EU and EEA Members should co-oridinate their activities in order to introduce identical standards of payments, A single account opened in any SEPA country enables you to make all types of clearances, SEPA credit transfer = must be performed by the end of the next day; no limits regarding transferred amounts of money can be introduced, SEPA direct debit = there is a uniformal document about a debtor’s consent ( with his / her electronic signature); a creditor can’t charge a debtor’s account 36 months after the last, non repeated order SEPA payment cards = identical rules to protect their holders ( e. g. a bank should return the amount of transaction unauthorized by a cardholder) European Banking Law 121
Taxation of banks Banking Law European Banking Law 122
General remarks on tax: What kind of payment a tax is? • gratitous, • compulsory, • non-repayable, • pecuniary What should we know about taxes from the Constitution? • Everyone shall comply with his responsibilities and public duties, including the payment of taxes, as specified by statute • The imposition of taxes, as well as other public burdens, the specification of those subject to the tax and the rates of taxation, as well as the principles for granting tax reliefs and remissions, along with categories of taxpayers exempt from taxation, shall be by means of statute. European Banking Law 123
Structure of tax obligation A creditor A debtor Fiscal organ ( on behalf of the Treasury or a commune) Taxpayer Successor Third party Tax remitter: Calculates, collects and transfers taxes to fiscal authority Tax collector: Collects and transfers taxes to municipal organs European Banking Law Elements of tax obligation • The parties • The terms of payment • The place of transaction • The amount of a tax 124
Components of taxes Subject of taxation • Anyone who is legally responsible for paying taxes, being the addressee of a tax act Tax base • Object of taxation expressed in quantity or value • Examples: amount of money (incomes, revenues), area of property, number of cars Tax rate Object of taxation • The factual / legal state which is connected with tax liability arising from the tax act • Tax divided by a tax base • Flat rate – remains unchanged while a tax base changes • Progressive rate – goes up together with the increase of a tax base European Banking Law 125
Classification of taxes State budget taxes Municipal taxes • Goods and services tax • Excise tax • Gambling tax • Corporate income tax • Personal income tax • Tonnage tax • Tax on silver and copper • Real estate tax • Agricultural tax • Forestry tax • Tax on means of transport • Donation and inheritance tax • Tax on civil law transactions • Tax card European Banking Law 126
Banks/ clients and their fiscal duties CIT • The most important tax paid by banks on their incomes Tax on chosen financial institutions • Established in 2016 VAT • Banking services are exempted from VAT Real estate tax • Tax paid on immovable property owned by a bank Clients’ duties: • Personal Income Tax – Lump sump of 19% is collected on incomes derived from interest from funds accumulated in a taxpayer’s account or in other forms of savings • Tax on gift and inheritance – Deposits are counted as an inheritance property and they are subject to tax on inheritance paid by heirs European Banking Law 127
Is the seat or the management of the bank on the territory of Poland? CIT: the scope of tax liability UNLIMITED TAX LIABILITY YES = A bank should pay tax on its whole income regardless of the place it came from LIMITED TAX LIABILITY NO = A bank should pay tax on incomes accrued within the territory of Poland European Banking Law 128
CIT: calculating a tax base Revenue (minus) deductible costs (minus) depreciation (= ) Income Exercise: Here are financial results of a bank’s activity: If costs are higher than revenues a tax loss occures. The amount of the loss may be deducted from income in the consecutive 5 years, nevertheless such a deduction in any of these 5 years cannot exceed 50% of that loss Calculate the 2018 tax base using the mechanism of a tax loss. 2016: (-) 30 000 PLN (loss) 2017: (-) 70 000 PLN (loss) 2018: (+ ) 100 000 PLN (income) ………………………………………………………………. European Banking Law 129
CIT rates in the EU (Deloitte Corporate Tax Rate 2017) European Banking Law 130
CIT: tax exemptions and reliefs Tax exemptions Tax reliefs • The National Bank of Poland • The State Treasury • Units of self-territorial government • Church legal persons ( if their incomes are spent on their statutory activity) • Special purpose public funds 1) 2) 3) 4) Donations made for public benefit can be deducted, but no more than by the amount equal to 10 % of the income Donations made for charity conducted by the Church may be fully deducted from the tax base Expenditures incurred by the taxpayer for the aqusition of new technologies may be deducted to the limit of 50% of these outlays In banks – 20% of the amount of credits (loans) written off in connection with the implementation of a restructruring programme, classified as lost and included in deductible costs European Banking Law 131
CIT: liability for tax arrears (1) Tax arrears = tax not paid within the time limit for such a payment The most important consequence is the default interest. due tax x default (in days) x rate Default interest = ------------------------- 365 The rate is 200% of the pawn credits rate, set by the MPC, plus two per cent; the final result cannot be lower than 8% Exercise: A regular taxman hasn’t paid his tax for two years until today. How much must he pay now? The amount of tax = 300 PLN The unchanged pawn credit rate = 2% European Banking Law 132
CIT: liability for tax arrears (2) Creditor Main debtor A bank Management Board members. Co-debtors Their liability is excluded if they : (a) indicate hidden company’s property to satisfy fiscal claims, (b) prove that in due time o motion was submitted to announce bankruptcy, (c) term of tax payment has lapsed when they were not holding duties of the Board members. European Banking Law 133
Real estate tax Object of taxation (1) Land ( not taxable to the agricultural tax or forestry tax) (2) Building = a structure which is permanently connectes with the ground, posseses wall, foundations and the roof (3) Structures = i. a. technical networks, water conduits, antenna masts - all of them are taxed only if used for commercial purpose Subject of taxation (1) Legal owner (2) Possesor (3) Perpeual usefructuary Tax base Total area ( lands), usable area (buildings), trading value (structrures) Tax rates Established by a municipal councils up to the maximum limit set by a statue. The highest rates are stipulated for lands and building connected with business activity ( = possessed by an entrpreneur) Terms of payment For the legal persons: they should calulate their tax individually and pay it without summoning monthly by the 15 th day of each month Tax decision-maker A village mayor, president of a city European Banking Law 134
Tax on financial institution 1. 2. 3. 4. 5. Imposed on domestic banks, branches of foreign banks, branches of credit institutions, cooperative savings and credit unions, domestic insurance companies, domestic reinsurance companies, branches and main branches of foreign insurance companies and foreign reinsurance companies. The taxable amount is the surplus of total assets of the taxpayer recognized in the trial balance prepared by the taxpayer at each monthend in excess of PLN 4 billion (with some exceptions) The tax rate is 0, 0366% Tax exemptions: state banks, financial institutions being subject to liquidation, bankruptcy or compulsory administration. The tax itself can not be the basis for changing banking agreements and financial services provided by a bank. European Banking Law 135
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