World Bank assists Czech National Bank to evaluate governance and failure resolution mechanisms in the banking industry

PRAGUE, January 26, 2005 - The World Bank today released the findings of two studies 'Czech Republic: Assessment of Governance of the Banking Sector" and 'Legal, Institutional and Regulatory Framework to Deal with Insolvent Banks: A Review of the Czech Case" at a seminar organized by the Czech National Bank (CNB) and the World Bank. The studies were undertaken on a pilot basis, continuing the successful cooperation with the World Bank over the past few years to pioneer the application of global best practice standards to development initiatives in the Czech Republic.

At the seminar, Cesare Calari, Vice President and Head of the World Bank's Financial Network, described a system for diagnosing financial sector vulnerability, known as the International Financial Architecture, or IFA, which has been developed by the World Bank and the IMF. The system, which is being used by more than 100 countries, was piloted in the Czech Republic. Indeed, the country has been the first to apply the system fully. A series of financial sector corporate governance assessments and a Global Bank Insolvency Initiative are extensions of the IFA system.

The first study on assessing the governance of the banking sector is part of a series of four pilot assessments of governance in financial institutions (banks, insurance companies, pension funds and mutual funds) and was undertaken in close cooperation with the CNB and the Czech banking community. It is still in its draft form and the seminar was an opportunity to consult both the methodology and the findings with a broad professional public. The Assessment identifies benchmarks for good governance in banking systems, drawing both on already established best practice principles (e.g., OECD) and newly emerging initiatives including the new Basel II bank capital adequacy framework and recent EU recommendations on corporate governance. The presentation of the Bank Governance Assessment follows the completion of a pilot Governance Assessment for the Czech Collective Investment Fund Sector in November 2004 undertaken in cooperation with the Czech Securities Commission.

The second study on bank insolvency was undertaken jointly with the CNB in the context of the Global Bank Insolvency Initiative, to review the capacity of the current institutional, legal and regulatory framework to deal with the resolution of bank insolvency in the Czech Republic. The Global Bank Insolvency Initiative is led by the World Bank in cooperation with the International Monetary Fund, and with participation of many countries. The study coincides with current work by the Czechs to prepare new insolvency legislation.