Banks are obliged to carry on their business in a prudential manner, i.e. in a manner that does not impair the interests of depositors and endanger the bank´s safety and soundness. They are also required to observe the terms and conditions stipulated in their licence and in the legal rules, including those issued by the CNB. If CNB Banking Supervision finds that banks are not abiding by these regulations, it is empowered to:
- require the relevant bank or foreign bank branch to remedy the situation within a specified period,
- require that persons in the management and supervisory board of the bank be replaced,
- restrict or prohibit the execution of some of the activities listed in the licence,
- order an extraordinary audit at the expense of the bank,
- impose a fine of up to CZK 50,000,000,
- reduce the bank´s capital to cover any loss after clearance thereof with reserve funds and other funds, provided that the loss exceeds 20% of the bank´s equity,
- impose conservatorship (only if the stability of the banking sector as a whole is endangered),
- revoke the licence (where serious shortcomings persist and in the cases mentioned below).
There are further measures linked to capital adequacy. If a bank`s capital ratio falls below two thirds of the minimum limit (set at 8% by a CNB Provision) the CNB can require it, for example, to increase its capital to a sufficient level, to limit the acquisition of certain (higher-risk) assets, to reduce its deposit interest rates to the usual level or to cease transacting business with persons who have close personal or proprietary links with the bank. If the ratio falls below one third of the prescribed minimum, the CNB is obliged to revoke the bank´s licence. The licence can also be revoked if a bank fails to open for business within 12 months of being granted its licence, if it has ceased to accept deposits from, or provide credits to, the public for six months or more, or if the licence was obtained on the basis of false information stated in the application.
The CNB can also take measures consisting in suspending the rights of shareholders who acquire or increase a qualifying holding in a bank without the CNB´s consent or who operate to the detriment of the sound and prudent management of the bank.