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Czech Banking Sector Faces New Regulations

The Czech banking sector is preparing for new regulations aimed at ensuring financial stability and protecting depositors’ interests. The amendments to the Banking Act, Credit Cooperatives Act, and Recovery and Resolution Act will introduce stricter capital requirements, management and internal control systems, and risk-management measures.

Key Changes

  • A maximum equity contribution of CZK 1,000 for credit cooperatives with a balance sheet limit of CZK 5 billion.
  • Loans provided to economically related persons capped at CZK 30 million.
  • The Rule 1:10 has been upheld by the Czech Constitutional Court, requiring deposits exceeding CZK 20,000 made before July 1, 2015, to be subject to the same capital requirements as newer deposits.

Banking Act Amendments

The Banking Act has been amended to introduce new capital requirements in the form of:

  • Capital buffers that banks and credit cooperatives must hold in addition to Tier 1 capital.
  • New rules on management and internal control systems, including:
    • Risk-management measures
    • Remuneration policies
    • CRD IV regulation

Recovery and Resolution Act

The Recovery and Resolution Act has been implemented in the Czech Republic as part of European legislation aimed at protecting financial stability. This law introduces measures used in case of a credit institution’s failure, including:

  • Obligatory contributions to national recovery funds
  • Creation of recovery plans
  • Power for the Czech National Bank (CNB) to:
    • Intervene early if a credit institution is infringing applicable legislation or faces financial difficulties.
    • Impose recovery measures, such as:
      • Sale of the institution’s undertaking
      • Asset separation
      • Transfer to a bridge institution
      • Bail-in tool

Resolution Planning and Funding

Credit institutions are required to:

  • Create resolution plans for potential failure and submit them to the CNB.
  • Contribute to the Resolution Fund, which will be used to recover losses caused by a credit institution’s failure.

The measures introduced by the Recovery and Resolution Act have not been used in practice yet, with the CNB opting instead to impose traditional recovery measures, such as:

  • Prohibition on providing further credit
  • Collection of deposits from clients