7/27/2006

IMF warns Poland over financial agency

he International Monetary Fund has warned Poland that plans for a unified financial services supervisory agency could expose the system to political interference.

"I think this is very weak legislation," Christoph Rosenberg, senior regional representative for the IMF, told the FT. "One fundamental objective of any law setting up such an agency is to ensure that its activity is independent of any government's political agenda. Without such assurances, undue interference could weaken banks, hurt investor confidence in the zloty and even result in financial crises."

The new agency will consolidate supervision of the securities market, banking, and the pensions and insurance industries.

Mr Rosenberg expressed concern about the ability of the new organisation to retain high-calibre staff currently employed by the national bank.

Legislation creating the new supervisory authority was passed by the lower house of the Polish parliament last week. It is now before the senate and is expected to be approved in early August.

Cezary Mech, a former deputy finance minister who helped draft the legislation, is seen as the likeliest candidate to head the agency.

Mr Mech said recently that the new agency was needed to save costs and because "various segments of the financial market are more and more intertwined".

Banks are currently supervised by the National Bank of Poland, headed by Leszek Balcerowicz, architect of Poland's 1989 economic reforms. Mr Balcerowicz has been criticised by the government and its populist coalition partners for pushing through reforms they say beggared many Poles, and for selling off key state assets. He had a spectacular falling out with Mr Mech this spring during the battle over whether to allow the merger of two Polish banks owned by UniCredit, the Italian financial group.

The new Financial Supervisory Commission would take away much of Mr Balcerowicz's power.

Six of the agency's seven members would be directly chosen by the government or the president, with only the president of the central bank remaining independent.

Mr Rosenberg called such a structure "quite unusual", noting that similar unified supervisory agencies, such as Britain's Financial Services Authority, were much more independent of government control. "It does not meet best practices," he said.

Poland's banking system is currently grappling with a rapid expansion of consumer lending, much of it denominated in Swiss francs, and with meeting Basel II capital standards. "There is a case to take time now to examine the legislation more closely and make the changes necessary to bring it in line with best practices," said Mr Rosenberg, adding that a unified supervisory agency was neither essential nor urgent in Poland.

The legislation has been criticised by Poland's central bank, by independent economists and by business groups. Polish bankers are afraid to comment publicly, worried about being called before a special parliamentary commission investigating the banking sector, but one banker called the legislation "extremely dangerous. It concentrates enormous power in the hands of one person the prime minister".

The European Central Bank commented on the proposed legislation in March and came to similar conclusions to the IMF.


Source: Financial Times Financial Times



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