CNB: The Czech Republic should join the banking union only on adopting the euro

The Government today discussed the updated Impact Study of Participation or Non-participation of the Czech Republic in the Banking Union and agreed with the recommendation that in the current situation the Czech Republic should not attempt to join the banking union and should monitor its further development. The Czech National Bank, together with the Ministry of Foreign Affairs and the Office of the Government of the Czech Republic, assisted the Ministry of Finance in the preparation of the study. It agrees with the main conclusions of the study, which found no reason or current need for the Czech Republic to join the banking union.

The Czech banking sector remains more resilient and stable than those in many other EU Member States and banking union countries, and is in very good or even excellent condition. According to the indicators of the domestic banking sector assessed in the study, the Czech Republic would thus not benefit from joining the banking union in the current conditions.

The study arrived at the same conclusion when assessing the impacts of banking union entry on the supervision of domestic banks. In this regard, the CNB welcomes the fact that the updated study, in the findings on supervision and regulation (page 14), concludes 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".

The CNB is also of the opinion 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 banking union's common funds for the resolution of credit institutions in the Czech Republic.

"We view the banking union primarily as a euro area project and are of the opinion that the Czech Republic should only enter the banking union on the same date as adopting the euro," said Governor Jiří Rusnok summing up the CNB's view.

The update of the study also analyses the current functioning of the bank resolution framework in the banking union and the debate on setting up a European Deposit Insurance Scheme (EDIS), whose establishment and form have not yet been agreed on in the EU. 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 (SRF). If the current condition of the domestic banking sector remained the same, Czech credit institutions would probably also be net contributors to the SRF, i.e. they would contribute to resolution in other banking union member countries. Therefore, from the resolution perspective as well, the study recommends not attempting to join the banking union in the current situation.

Markéta Fišerová
Director of the Communications Division and CNB Spokesperson