The principles of resolution of banks, credit unions and some investment firms* were defined in the Act of 10 June 2016 on the Bank Guarantee Fund, the Deposit Guarantee Scheme and Resolution (Journal of Laws of 2016 item 996).
Regulations forming the resolution legal framework adopted in the Act implement into the Polish legal order provisions of the Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms.
The purpose of resolution regime is to ensure the Bank Guarantee Fund a set of effective tools, which will allow to take quick and effective intervention towards the entity that is failing or likely to fail to ensure continuity of functions that are critical to customers of that entity and to the economy (i.e. critical functions) as well as to protect financial stability. In the first place resolution costs should be charged to the owners and creditors of the entity. Furthermore, on the basis of the Act, special resolution funds have been created (one for banks and investment firms, and the other for credit unions), contributed by all entities covered by the subject scope of the Act, to finance the BGF actions. As a result, the risk of the need to involve the budgetary funds, i.e. the cost to the taxpayers, is limited.
Decisions regarding resolution actions taken by the Bank Guarantee Fund are taken pursuant to administrative proceedings and subject to subsequent judicial review in terms of their compliance with the law.
Resolution actions are taken by the Bank Guarantee Fund, where the following conditions are met jointly:
- the entity is failing or likely to fail,
- available supervisory measures or activities by the entity do not allow to remove this failure threat within a reasonable timeframe,
- the actions are necessary in the public interest.
As part of resolution the BGF takes control of a failing or likely to fail entity and may use one or more tools specifically described in the Act:
- sale of business tool,
- bridge institution tool,
- write down or conversion of liabilities,
- asset separation tool.
Every time when use of the BFG funds is necessary for the resolution reasons, shares of the entity are written down in whole or in part to cover the losses or debt instruments issued by this entity are converted into capital – in the case of recapitalization need. Thanks to this, resolution costs are in the first place borne by the owners and subordinated creditors.
The principles of resolution execution ensure that all creditors of the entity under resolution will not suffer losses higher than in the case of bankruptcy, which was heretofore the primary tool of elimination from the market of entities whose activities put clients at risk. Actions taken by the Bank Guarantee Fund under no circumstance will charge covered deposits with resolution costs.
* Investment firms, which are authorized to operate in the area referred to in Article. 69 paragraph. 2 item 3 or 7 of the Act on Trading in Financial Instruments.