banking regulations, banking sector, competition, Europe, financial crisis, Financial sector

The global financial crisis: changes in competition in the banking sector in Europe, the role of regulation and intervention by governments and central banks

The global financial crisis indicated importance of regulatory and competition policies in the banking sector, which were underappreciated before the crisis. According to dr. Małgorzata Pawłowska from the institute of  the National Bank of Poland, the question about impact of competition and stability of the banking sector remains open. The debate was fostered during the 134th Seminar on 16th October 2014.

According to dr. Pawłowska, before the financial crisis an increase of competition within the banking sector of the new EU member states could be noticed. According to the quantitative research about the Polish banking sector, increasing competition between Polish banks was a related to privatization and consolidation of Polish banks globally. In 2008 decline of competition was a result of the financial crisis. These same channels (acquisitions and deregulation) causing changes of competitiveness in the banking sector in the Eurozone, had impact on Polish banking sector due to FDI in Poland.

The level of competitiveness of banking sector in the EU declined due to financial crisis. After the collapse of Lehman Brothers many banks such as: Royal Bank of Scotland, have been bailed out and others such as: ABN AMRO, or HypoVereinBank have been nationalized. Some experts claim that too much competition, financial innovations and inadequate regulations caused the financial crisis in 2008, because increase in competition results in more risky decisions and has negative impact on stability. On the other hand, it is claimed that greater competition eliminates the weakest banks. According to dr. Pawłowska, it is crucial to keep competition on adequate level in order to ensure stability of the banking sector. It is also important to monitor changes in competiveness and its determinants.

Dr. Mirosław Groszek (Vice President of Polish Banks Association) claimed that regulatory policies always affect competition between banks, due to size of the sector and scope of its activity always being framed by law. However, the financial crisis caused increased credit risk, just as market climate has changed affecting competition. In dr. Groszek’s view, competiveness can be measured not only by the concentration of the market of banking services but also by the change of structure of incomes. Among the consequences of the financial crisis were both the decline of interest income, and simultaneous increase in the income from provisions and fixed administration fees. The reason of that tendency were banking regulations, designed to limit risk and deleveraging.

Andrzej Reich from National Financial Board added that banks and politicians are to be held responsible for the financial crisis, due to their attempts to exploit growth of banking sector for their own benefits. Banks used to seek opportunities to increase their revenues quickly and politicians perceived growth of this sector as a chance for a higher political support. The real problem was the lack of appropriate control, which caused many inadequate practices. Fortunately, the outbreak of the financial crisis stopped some of those practices. According to Mr. Reich, banking supervisors are also to be blamed, as they provided financial institutions with quiet support. Despite Bazyl II being the greatest achievement of the financial market, the issue of private capitals remained untouched. Banks used to keep reserves on the required level of 8%, but frequently quality of those reserves was unchecked. Careful analysis would indicate that the real value of the capital was not 8% but 1%.


During the lively debate that ensued after the presentations our guests discussed various aspects of Polish transformation and its causes – we encourage you to watch the entire Seminar online on (click here).

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