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    Czech Republic Decides Not to Join Banking Union

    January 11, 2021

    The ESMA Board of Supervisors, on December 16, 2020, appointed Vojtěch Belling, the Executive Director of CNB’s Financial Regulation and International Cooperation Department, as one of two new members of the ESMA Management Board, beginning from January 01, 2021. Mr. Belling is the first member of this authority from the Central and Eastern Europe. Additionally, CNB announced that a study assessing indicators in the domestic banking sector revealed that Czech Republic would not benefit from joining the Banking Union in the current conditions. The study arrived at the same conclusion when assessing the impact of Banking Union entry on the supervision of domestic banks. In this regard, CNB welcomes the study findings, which lead to the conclusion that "for countries outside the euro area, joining the Banking Union would evidently be more advantageous if tied to the decision to adopt the euro."

    CNB, together with the Ministry of Foreign Affairs and the Office of the Government of the Czech Republic, has assisted the Ministry of Finance in the impact study on participation or non-participation of the Czech Republic in the Banking Union. CNB also opined that participation of the Czech Republic in the Banking Union cannot be recommended at present due to the continued non-completion of the Banking Union architecture and the insufficient experience with its practical application, especially in the case of participating countries outside the euro area. Another reason is the absence of a need for access to the common funds of the Banking Union for the resolution of credit institutions in the Czech Republic. In the event of the Czech Republic participating in the Banking Union, domestic banks would contribute to financing the resolution of banks in all the Banking Union member countries, with which they would share the capacity of the Single Resolution Fund. If the current condition of the domestic banking sector remained the same, Czech credit institutions would probably also be net contributors to the Single Resolution Fund, although the Czech banking sector remains more resilient and stable than those in many other EU member states and Banking Union countries. Thus, the country would not benefit from joining the Banking Union in the current conditions. 

     

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    Keywords: Europe, Czech Republic, Banking, Banking Union, Resolution Framework, ESMA, CNB

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