The last EU-summit taking place in the next days should discuss closer the banking union. The recent debates on that issue have shown big differences between the German and French positions. Poland supported the German one saying that only the biggest banks should be controlled by the ECB. But of course the Polish position is much more complicated. Let’s summarize it.

     Banking Union is contentious topic in Poland. The government, supervisory authorities and the political opposition all fear that common supervision will have a negative impact on the safety and soundness of the Polish banking sector. Thus, Polish authorities want to secure a voice in the European Central Bank (ECB) which is in charge of common oversight.
     The banking union is a project under construction, presented by the EU authorities as another tool for fighting the crisis in the Eurozone. This is why the Polish government supports this solution along with other solutions aimed at restoring stability in the Eurozone. Even though the banking union is open to non-Eurozone countries, the Polish government has not yet declared whether Poland will join this initiative and is waiting for more details to be revealed. The government opinion on whether Poland should participate in the banking union has been shifting in response to the changing shape of this scheme. Whenever new details of the banking union are unveiled the government calculates how the proposed solutions would affect national interests and the soundness of the Polish banking sector. After the June summit when the preliminary concept of the banking union was adopted, the Polish prime minister expressed support for closer integration of bank governance. He has also emphasized that the banking union is not restricted to the 17 Eurozone countries, referring to the concerns that closer integration within the Eurozone might lead to marginalization of Poland’s impact on European politics.
     In September 2012, the prime minister emphasized that Poland was open to participation in the banking union providing that it would have a voice over the shape of the union and in the decision-making process of its future supervisor. However, the preliminary proposal of the Commission to make the ECB responsible for oversight of the banking sector in the EU disappointed the government as it did not address the problem of representation. Since Poland does not use the euro, it does not have a voice in the ECB, which was set up to take on regulatory duties. Participation in such a scheme would imply subjecting Polish banks to ECB decisions while depriving Polish authorities of a say in the ECB supervisory process.
     The position of the Polish government softened, when during the October summit European leaders agreed to allow the ECB to supervise banks from next year, but left such critical issues as the method for accommodation of non-euro nations to the scheme, the number of banks the ECB will directly supervise and whether and how countries will share the cost of resolving problems for further discussions.
     The positions of The Polish Financial Supervisory Authority (KNF) and the Central Bank, two institutions responsible for the soundness of the banking sector in Poland, are similar to that of the government. Both institutions are sympathetic to the idea of tighter supervision on the European level. They agree that the current system of regulations and supervision is sufficient neither on the national level nor on the European one.
There are three issues which concern KNF and the Central Bank. The first one regards the rationale and the direction of the reform of transnational prudential regulation, while the remaining two regard the impact of the projected reforms on the stability of domestic banking sectors. First, Polish regulators stress that governance reform is already under the way. Although they support reform in general, they doubt that the banking union pushed by the Commission would help to overcome the crisis in the Eurozone.
     Second, regarding the impact of projected changes on the Polish banking sector, Polish regulators stress that banking union rests on a “holding regulatory approach” according to which a transnational watchdog focuses on the soundness of the banking group as a whole, and pays less attention if any to daughter companies. This approach is, however, problematic for Poland, whose banking sectors comprise largely of daughter companies. According to supervisory institutions the current crisis demonstrates that due to stringent local regulations and oversight Poland’s banks avoided problems and were safe, while their parent companies were in trouble and in several cases required state help. Therefore, the argument goes, a holding regulatory approach poses serious risks of asset outflows from daughter to mother companies.
     The third concern regards the equal treatment of banks. KNF is afraid that Poland’s banks could be disadvantaged if a balance is not maintained between the ECB and its oversight of euro zone banks and the powers of other authorities to oversee non-euro zone banks. According to the deputy head of the KNF joining the union in its currently proposed form would lead to a situation in which Polish banks would be supervised by the ECB, but would not have access to its financial resources nor to the euro zone rescue fund, the European Stability Mechanism (ESM). Therefore, KNF advises no rush with membership declaration but recommends active participation in debates on the shape of the scheme.
     What decision will be taken by the Polish government during the final negotiations? That will remain open till the final proposal is presented.