24 September 2012

IMF: Republic of Poland Technical Assistance Report--Macro-prudential Framework

The NBP had prepared draft legislation that it shared with the mission and the relevant authorities ahead of the mission’s arrival. The mission reviewed the draft proposals in light of potential legal constraints; recent international and European Union (EU) developments; and discussions of the proposals with those authorities that are meant to participate in the Systemic Risk Board (Board), including the NBP, the Financial Supervision Authority (KNF), the Ministry of Finance (MoF), the Bank Guarantee Fund (BGF), and the Central Statistical Office (CSO).

There was consensus among all authorities that a Systemic Risk Board should be set up. The authorities also agreed that the NBP should play a leading role. All agreed that the Board should be chaired by the President of the NBP and that the NBP should provide the secretariat for the Board. The mission team supported these decisions, noting that establishment of formal arrangements were important to mitigate systemic risk and that the central bank had the right expertise and incentives to ensure the effective pursuit of macroprudential policy.

The team recommended that the Systemic Risk Board should become the “designated authority” in the sense of the EU Capital Requirements Directive (CRD IV). This would enable the Board to become the authority responsible for determining the dynamic capital buffer. It would also allow for the Board to use and calibrate a range of other macro-prudential tools that the Directive will open up for national authorities, including further systemic buffers and other options to tighten requirements beyond their EU wide minimum levels. The authorities agreed with this approach.

The team worked with the authorities to determine ways in which macro-prudential tools could be made legally binding. This discussion took its starting point from the existence of constitutional constraints on the rulemaking powers of non-constitutional bodies. This led to consideration of two workable approaches. One is for the law to establish tightly-described  limits within which the Board could use its discretion to set parameters for macro-prudential tools. The other is for the law to enable the MoF to issue regulations on macro-prudential policy upon a recommendation of the Systemic Risk Board.

The team encouraged the introduction of additional “soft” policy tools, such as ‘opinions’ issued by the Systemic Risk Board. This was important to allow policy coordination beyond prudential tools. For example, opinions could be addressed to the council of ministers, when it is judged that the build-up of systemic risk is driven by macro-economic imbalances.

The authorities may want to consider moving from simple majority voting to qualified majority voting for major policy decisions. This could include the determinations of buffers under the CRD IV as well as recommendations issued to the KNF and the MoF. Such voting arrangements would ensure that decisions have strong support, while not undermining unduly the need to avoid delay in decision-making. By contrast, a requirement for unanimity was likely to impair and obstruct the effective working of the Board.

Accountability should also leverage the existing Financial Stability Report (FSR) as prepared by the NBP’s Financial System Department. The FSR should continue to be endorsed by the NBP Board, rather than the Systemic Risk Board, so as to preserve a separate source of candid and credible analysis. Sufficient resources would need to be made available to the secretariat and the Financial System Department at the NBP to ensure that the functions and reporting duties of the Systemic Risk Board can be adequately supported.

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