Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Liquidity Shortage in Banks. The Case of Poland
Mateusz Mokrogulski*
The aim of this paper is the empirical analysis of changes in liquidity
position of the Polish banks during the recent financial and economic crisis.
Although the Polish economy did not plunge into the recession, the banking
sector temporarily faced liquidity shortages. In Q4 2008 bank interest rates
on term deposits began to rise, much above the interbank interest rates.
The fears regarding liquidity occurred again in 2011, along with the
European sovereign debt crisis. The relationship between bank interest
rates fluctuations and deposit changes is studied using the correlation
analysis. The results show that steps taken by the banks brought generally
positive effects and the deposit base was sufficiently strengthened.
Moreover, the paper contains institutional issues, i.e. an overview of steps
taken by the institutions in Poland, namely the Polish Financial Supervision
Authority (KNF) and the National Bank of Poland (NBP) that helped
overcome the turbulent times owing to their active role. The presented
analysis is also forward-looking as it raises the problem of new liquidity
standards, i.e. LCR and NSFR, which will represent a real challenge for the
banks in the European Union. In case of Poland it is especially long-term
funding that is now a top priority for the banking sector.
JEL Codes: D20, G21, G28
1. Introduction
The objective of this paper is to describe the problem of liquidity in Polish banks in years
2008-2013. The studies on bank liquidity are now gaining popularity due to gradual
introduction of liquidity standards in the European Union. Because of this, banks will have
to pay more attention to the volume of liquid sources they possess. Apart from that,
banks’ activities affect the real economy through the credit channel and have an influence
on the volume of savings. The presented analysis covers bank interest rate fluctuations
together with changes in the volume of deposits. Except for the observed tendencies, the
possible outcomes for the banks are described. The findings are of a quantitative type in a
form of correlation coefficients, as well as the values of selected indicators. Poland is also
compared to other EU countries with respect to profitability. Moreover, the paper contains
the institutional matters. i.e. it shows the active role of the Polish Financial Supervision
Authority (KNF) and the National Bank of Poland (NBP) during the crisis time.
The presented study is first and foremost empirical. The findings are put together with the
liquidity position of the Polish banks. In this respect they are new as so far that type of
research on the Polish banking sector has not been performed. The paper consists of the
introduction, four chapters (on literature review, the methodology, findings, and
institutional issues), as well as the summary and conclusions.
______________________________________________________________________
*Dr Mateusz Mokrogulski, Department of Economics II, Warsaw School of Economics, Poland, email:
mmokro@sgh.waw.pl
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
2. Literature Review
In the literature the emphasis is put on the importance of liquidity in the banking activity.
Those institutions have to possess sufficient amount of liquid assets in order to meet their
liabilities. However, according to Berger and Bouwman (2009, p. 3780) comprehensive
empirical measures of bank liquidity creation are conspicuously absent, making it difficult
to address numerous questions of research and policy interest. The abovementioned
economists pose such questions: How much liquidity does the banking sector create?
How has bank liquidity creation changed over time? How does it vary in the cross
section? Which banks create the most and least liquidity? What are the value implications
of bank liquidity creation? It is true that corporations do not invest all their resources in
profitable, long-term projects. They also invest in less profitable liquid assets that are held
on their balance sheets as buffers against shocks (Holmström, Tirole 2000, p. 295). In the
opinion of Kashyap et al. (2002, p. 35) without measures of liquidity creation in hand, it is
not possible to examine policy-relevant issues, such as the effect of bank capital on bank
liquidity creation. Moreover, an institution that offers liquidity on demand must invest in
certain costly "overhead" that consists of the large volume of cash and securities that a
bank holds as a buffer stock on the asset side of its balance sheet. In the same paper it is
also specified that deposits and loan commitments require overhead in the form of liquidasset holdings, and that this overhead is costly. Diamond and Rajan (2012, pp. 553-554)
go further in their research and consider the fact of financing illiquid assets with
demandable deposits, which exposes banks to damaging runs. According to them
competition for funds induces banks to offer deposit contracts that maximize ex ante
household utility. However, there is uncertainty about future household endowments.
This, coupled with the mismatch between the long gestation period for the projects and
the demandable nature of deposits, is the source of banking sector difficulties. A similar
question, i.e. how the bank should match its assets and liabilities, was addressed by Song
and Thakor (2007, p. 2130). However, the matching here is not the usual one with respect
to maturity; rather, it is based on how much value the bank is adding.
Except for the literature that directly refers to the problem of liquidity in the banking sector,
one can also find theoretical background in certain microeconomic articles on the
oligopoly market. It is true that without liquid sources banks are unable to survive, so
when liquidity shortage appears, they are willing to give up some of their profits. Interest
rates on new term deposits thus have a tendency to rise when crisis times occur. The
abovementioned process namely resembles price wars in the oligopoly market. Such
issues are present in the works by Friedman (1971, 1973), Green and Porter (1984), as
well as Rotemberg and Saloner (1986). Visible economic slowdown began in Poland in
Q4 2008 and starting from that time banks in Poland engaged in the deposit war.
3. The Research
The main hypothesis of the research is that banks in Poland could temporarily suffer from
liquidity shortage during the last financial and economic crisis. That is why they decided to
raise their deposit rates in order to gain new liquid sources. Polish banks became aware
of possible liquidity shortages in Q4 2008, together with the advent of the financial and
economic crisis. Next, the fears came back in 2011, when the sovereign crisis hit the euro
area, especially Greece. This situation was new, as the banks had been considered liquid
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
enough so far. The hypothesis also states that it is also the institutional actions in Poland
that supported banks in terms of liquidity in times of unfavourable macroeconomic
conditions. The presented analysis covers last 6 full years, i.e. 2008-2013.
When analysing the liquidity position of Polish banks, it is necessary to mention about the
changes in the volume of deposits stemming from interest rate fluctuations. Nevertheless,
the latter represents a consequence of the decisions of the Monetary Policy Council
(MPC) that sets the official interest rates of the National Bank of Poland. The main
objective is to keep consumer inflation (CPI) at the level of 2.5% yoy, which is direct
inflation targeting. Since 2007 the NBP interest have been changed several times.
Starting from Q2 2007 until Q2 2008 the rates were hiked as a consequence of lasting
recovery in the domestic economy. During the tightening cycle the main reference rate
increased from 4.00% to 6.00%. However, when the financial and economic crisis began,
which occurred after a collapse of the Lehman Brother Bank in September 2008, the rates
were cut at a high pace. From November 2008 until June the reference rate was lowered
by 250 bps, to 3.50%. After the first wave of the crisis, i.e. in H1 2011, the tightening cycle
was originated again, and in May 2012 another hike of 25 bps took place. As a
consequence, the reference rate reached the level of 4.75%. Starting from November
2012 the easing cycle was observed, and in Q3 2013 the reference rate levelled off at
2.50%, i.e. the historical low. Thus, contrary to the core economies, the rates in Poland
have not been cut to the vicinity of zero.
After highlighting the tendencies in interest rates, one can more easily describe the
changes in deposit volumes in the Polish banks and associate it with bank interest rates
fluctuations. The MPC decisions affect changes in interbank interest rates, i.e. WIBOR 3M
(Warsaw Interbank Offered Rate). WIBOR for Poland is equivalent to LIBOR USD for the
United States or EURIBOR for the euro area. In general the bank deposit rate should be
lower than WIBOR1, which represents a “reference” rate at which the bank can borrow
funds in the interbank market without any collateral. If the rate set by the bank exceeds
WIBOR, then the bank finances its lending activities at a higher cost than the one
available in the interbank market. Such a situation may happen when the banking sector
lacks liquidity. Banks are then unwilling to make liquid sources available to other credit
institutions and badly need new deposits from the non-financial sector (household or
corporate ones). Sharp increases in bank deposit rates that do not stem from proportional
growths of WIBOR may thus represent a signal of liquidity shortage. For the Polish
banking sector a detailed analysis has been carried out in order to describe how the
banks reacted to the observed liquidity shortages, and what the outcomes were.
The figures 1 and 2 show the values of the bank interest rates on new deposits, together
with the NBP reference rate, and the volume of deposits. WIBOR was skipped from the
figures, as it usually does not diverge significantly from the NBP reference rate. The figure
1 refers to the household deposits and the figure 2 to non-financial corporate deposits
(both in the domestic currency).
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Figure 1
Interest rate on new PLN household deposits, NBP reference rate and volume of those
deposits in Poland
Source: own calculations based on NBP and Polish FSA data.
Figure 2
Interest rate on new PLN non-financial corporate deposits, reference rate and volume of
those deposits in Poland
Source: own calculations based on NBP and Polish FSA data.
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
The next step of the analysis is verification of the hypothesis that fluctuations in interest
rates on new deposits went together with changes of those deposits’ volumes. The data
for the Polish banking sector are available with a monthly frequency. In the statistics of
the National Bank of Poland there is a breakdown of interest rates of new domestic
currency deposits with respect to their original maturities. In the analysis the following
intervals have been included:
 up to 1 month (1M),
 over 1 month up to 3 months (1M; 3M>,
 over 3 months up to 6 months (3M; 6M>,
 over 6 months up to 1 year (6M; 1Y>,
 over 1 year (1Y), i.e. long-term deposits.
In order to prove it, there has been studied interrelation between interest rates on new
term deposits of a certain maturity and the volume of those deposits for the
abovementioned sub-categories. Two separate calculations have been made: for deposits
from households and non-financial corporations. The correlation coefficients has been
computed for the following variables:
 share of the deposits of a given maturity in total deposits,
 difference between the interest rate on new deposits of a given maturity and
average interest rate on new deposits.
The idea beyond using the abovementioned “relative” data instead of the raw ones is that
both the volume of deposits and interest rates were fluctuating within the analysis horizon.
In particular, the volume of household deposits increased by 125% between the end of
2007 and the end of 2013. For corporate deposits the growth totalled 109% (figure 1 and
2). Hence, using absolute values could lead to misleading conclusions. Bank interest
rates also changed at that time, which has already been described. The data on the share
of deposits of a given maturity are shown on figures 3 and 4. Figures 5 and 6 present
interest rates on new deposits.
Figure 3
Breakdown of household PLN term deposits by maturity
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Source: own calculations based on Polish FSA data.
Figure 4
Breakdown of non-financial corporations PLN term deposits by maturity
Source: own calculations based on Polish FSA data.
Figure 5
Interest rate on new household PLN deposits by maturity
Source: NBP.
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Figure 6
Interest rate on new non-financial corporations PLN deposits by maturity
Source: NBP.
4. The Findings
The data on figures 3 and 4 show that:
 in case of households banks recorded the highest growths in case of longer-term
deposits, i.e. (3M; 6M>, (6M; 1Y> and over 1Y, where the average annual
dynamics (for the absolute value of deposits) in the analysed period totalled
20.9%, 19.6%, and 31.2% respectively; the share of those deposits in the total
deposits increased as well; at the same time the volume of the deposits with
maturity up to 1M slowly declined,
 in case of non-financial corporations the situation is much different, as it is shorterterm deposits (maturities up to 3M) that are prevalent; however, the share of
deposits with maturity of up to 1M declined significantly, and the highest nominal
annual dynamics were registered in case of maturities (1M; 3M>, (3M, 6M> and
(6M; 1Y>, totalling 15.6%, 30.6% and 18.9% respectively.
Contrary to the conclusions above, graphs 5 and 6 do not bring precise outcomes, as
interest rates on new deposits were fluctuating sometimes significantly. That is why the
correlation analysis is more appropriate here.
The results of the computations are presented in table 1.
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Table 1
Correlation coefficients: the difference between interest rates on new PLN deposits and
the average interest rate on new deposits vs. the share of term PLN deposits by
maturities for households and non-financial corporations
Maturity
Up to 1M
(1M; 3M>
(3M; 6M>
(6M; 1Y>
Over 1Y
Households
Correlation coefficient
t-statistic
0,715
8,61***
0,293
2,58**
0,396
3,63***
-0,089
-0,76
0,248
2,15**
Non-financial corporations
Correlation coefficient
t-statistic
0,704
8,36***
0,298
2,63**
0,236
2,05**
0,209
1,80*
0,054
0,46
Source: own calculations.
The results show vividly that owing to fierce competition on the deposit side, banks
managed to accumulate a large portion of new deposits. In 8 out of 10 analysed intervals
there was a positive correlation between the share of deposits of a given maturity and the
difference between the interest rate on new deposits (of a given maturity) and average
interest rate on new deposits. Nevertheless, higher correlation coefficients were in
general observed for shorter maturities.
Table 2
ROA and NIM indicators. Poland in comparison to other EU countries (excluding Greece
and Croatia)2 in 2007-2013
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
2007
Austria
0.75
Belgium
0.45
Bulgaria
1.95
Cyprus
1.28
Czech Rep.
1.31
Denmark
0.54
Estonia
1.87
Finland
1.05
France
0.42
Germany
0.19
Hungary
1.20
Ireland
0.58
Italy
0.71
Latvia
1.67
Lithuania
1.35
Luxembourg 0.65
Malta
0.69
Netherlands 0.64
Poland
1.81
Portugal
0.91
Romania
1.80
Slovakia
1.04
Slovenia
0.91
Spain
1.03
Sweden
0.66
UK
0.59
2008
0.09
-1.47
1.98
0.87
1.07
-0.14
1.31
0.46
0.11
-0.29
0.97
0.01
0.34
0.20
0.79
0.04
0.21
-0.37
1.32
0.20
1.72
0.84
0.41
0.68
0.46
-0.37
2009
0.18
-0.11
1.06
0.58
1.41
-0.17
-3.41
0.42
0.23
-0.08
1.67
-1.73
0.31
-3.97
-3.94
0.43
1.85
-0.01
0.75
0.34
0.56
0.54
0.09
0.57
0.24
0.02
ROA
2010
0.46
0.52
0.81
0.58
1.28
0.11
0.40
0.35
0.42
0.07
0.01
-3.09
0.29
-1.66
-0.28
0.50
0.97
0.33
1.00
0.41
0.30
0.94
-0.24
0.47
0.45
0.21
2011
0.10
0.06
0.62
-3.98
1.16
0.03
3.14
0.31
0.27
0.08
-0.90
-0.63
-0.87
0.47
1.51
0.20
0.77
0.25
1.24
-0.21
0.11
1.18
-0.84
-0.03
0.44
0.21
2012
0.31
0.19
0.64
-3.44
1.36
0.10
2.01
0.35
0.17
0.05
-0.44
-0.92
-0.06
0.59
0.95
0.49
1.15
0.19
1.20
-0.26
-0.64
0.95
-1.49
-1.37
0.44
0.10
2013
-0.04
0.39
0.59
-3.42
1.08
0.24
1.77
0.39
0.33
0.06
0.00
-0.88
-0.77
0.91
1.02
0.50
0.72
0.24
1.12
-0.71
0.08
0.96
-7.99
0.36
0.54
0.12
2007
1.67
0.84
3.68
1.88
2.41
1.01
2.47
1.29
0.57
0.80
3.69
0.95
1.68
2.47
2.07
0.51
1.27
1.08
2.80
1.84
3.39
2.40
2.11
1.56
0.96
1.22
2008
1.64
1.02
4.01
1.73
2.59
1.10
2.54
1.19
0.71
0.85
3.00
0.90
1.87
2.60
2.30
0.74
1.18
1.01
2.76
1.86
3.38
2.46
2.19
1.64
0.93
1.13
2009
1.71
1.25
4.00
1.63
2.76
1.43
1.89
0.99
1.18
1.02
4.01
0.86
1.82
1.96
1.58
0.71
1.45
1.13
2.57
1.55
3.78
2.96
2.02
1.96
1.05
0.96
NIM
2010
1.80
1.20
3.96
1.89
2.86
1.23
1.86
0.69
1.23
1.02
4.19
0.69
1.65
1.30
1.51
0.62
1.26
1.22
2.69
1.48
4.16
3.08
2.25
1.79
0.98
0.95
2011
1.75
1.22
3.74
2.45
2.80
1.09
2.83
0.60
1.16
1.04
4.03
0.55
1.64
1.79
1.77
0.64
1.54
1.16
2.74
1.55
3.84
3.25
2.25
1.69
0.90
0.89
2012
1.66
1.30
3.19
2.31
2.58
1.11
2.14
0.52
1.07
1.01
4.21
0.59
1.52
1.74
2.58
0.64
1.77
1.15
2.67
1.35
3.33
3.09
2.08
1.81
1.01
0.85
2013
1.71
1.39
2.97
2.73
2.33
1.15
2.01
0.65
1.12
1.13
4.25
0.68
1.47
1.87
1.56
0.59
1.82
1.29
2.47
1.18
3.20
3.13
1.83
1.81
1.03
0.94
Source: own calculations based on ECB data.
Indices description:
ROA (return on assets) – net profit divided by total assets.
NIM (net interest margin) – net interest income divided by total assets.
It is also true that in spite of surges in interest rates, the Polish banking sector was not too
badly hit by the economic crisis and liquidity shortage. The table 2 shows vividly that in
2013 Polish banks were characterised by high values of ROA (2nd position after Estonia)
and NIM (6th position after Hungary, Romania, Slovakia, Bulgaria and Cyprus) indicators.
Only small portion of the profit was thus given up in order to improve the liquidity position.
Nevertheless, Poland has so far failed to reach the high pre-crisis values recorded in
2007. It is especially visible in case of ROA indicator, which except for interest income
also contains other components.
The finding have so far shown that temporary liquidity shortage was filled up with new
deposits, which were accumulated owing to higher interest rates. The entire process is
thus similar to the one described in theoretical works on price wars in oligopoly markets.
The empirical outcomes for Poland are actually in line with the findings of Kashyap et al.
(2002) and Diamond and Rajan (2012). But how strongly did the banks lack liquidity and
what was the role of institutions in Poland at that time?
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Proceedings of 9th Annual London Business Research Conference
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5. Institutional Issues
Two institutions in Poland, namely the Polish Financial Supervision Authority (KNF), as
well as the National Bank of Poland took a few steps to improve the liquidity position of
the Polish banks. First, in the beginning of 2008 the Polish FSA introduced so called
liquidity standards with a view to setting minimum requirements regarding liquidity for all
banks (commercial and co-operative), as well as branches of credit institutions. The
appropriate resolution was implemented in times when certain American and European
banks drastically lacked liquidity. For banks located in Poland it was a clear message that
the supervisory agency would pay lots of attention to the problem of liquidity and possible
shortage here would not be justified with e.g. higher profitability indicators. The
resolutions of the Commission for Banking Supervision 3 that was later adopted by the
Polish Financial Supervision Authority4 (KNF) introduced 4 liquidity standards: M1, M2,
M3 and M4. They are slightly different for banks and branches of credit institutions, and
small institutions with assets not exceeding 200 mn PLN (approx. 50 mn EUR) got less
stringent requirements. In case of commercial banks the liquidity standards are defined as
follows:

short-term liquidity gap (M1) – a difference between liquidity reserve (primary and
supplementary) and unstable external funds; a minimum value of 0,

short-term liquidity factor (M2) – a ratio of liquidity reserve (primary and
supplementary) to unstable external funds; a minimum value of 1,

coverage ratio of non-liquid assets with own funds (M3) – a ratio of own funds (less
the aggregate value of capital requirements for market and delivery settlement risk, and
counterparty risk) to non-liquid assets; a minimum value of 1,

coverage ratio of non-liquid assets and limited liquidity assets with own funds and
stable external funds (M4) – a ratio of the sum of own funds (less the aggregate value of
capital requirements for market and delivery settlement risk, and counterparty risk) and
stable external funds to the sum of non-liquid assets and limited liquidity assets.
The expression “liquidity reserve” i.a. refers to: cash, receivables from the National Bank
of Poland or another bank maintaining the reserve requirements (whose payment due
date does not exceed 7 days) and selected debt instruments. “Stable external funds” i.a.
mean part of the deposit base and own securities not included in own funds, which a bank
or a branch of credit institution considers a stable source of funding and sets with caution.
Finally, “limited-liquidity assets” represent a sum of part of assets resulting from
transactions other than banking operations and part of assets in inconvertible currencies.
M1 and M2 standards refer to the short-term liquidity5. It is the ability to fulfil all financial
obligations by the due date falling within the period of 30 consecutive days. Thus, if the
bank meets both requirements, it should be able to operate in crisis times for 30 days,
without any external support. By contrast, M3 and M4 refer to the long-term liquidity,
which means monitoring the ability to perform all financial obligations by the due date
falling within the period of more than 12 months. Hence, long-term liquidity is associated
with the funding of long-term assets, which in case of Poland mostly constitute mortgage
loans. A bank or a branch of credit institution should possess sufficient volume of stable
liabilities in order to offset substantial outflow of money when granting a mortgage loan.
This kind of product is going to be repaid for many years.
The figure below presents values of the M2 and M4 requirements. The M3 was skipped
as banks keep it much above reference levels6.
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Proceedings of 9th Annual London Business Research Conference
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Figure 7
M2 and M4 liquidity standards in Poland – average value for banks with assets over 200
bn PLN
Source: own calculations based on Polish FSA data.
The figure above shows that significant increases in bank interest rates at the turn of
2008/2009, and later on in 2011 resulted in substantial recovery of the short-term liquidity
position of the Polish banks. Positive trends were especially visible in the first period,
when M2 increased from 1.3 to 1.6. Nevertheless, the situation is much poorer in case of
M4, which levelled off at 1.18-1.22. It can be thus stated actions taken by the bank helped
to improve the short-term liquidity and the introduction of liquidity requirements provided
the banks with a certain benchmark against which they can evaluate themselves.
Currently M2 is staying at much higher levels than in 2008. In case of long-term liquidity
the situation is not so optimistic and it is providing long-term funding that represents a real
challenge for the banks not only in Poland, but across the entire European Union as well.
For Poland long-term debt instruments would serve to finance mortgage loans, whose
maturity is still much higher than the maturity of instruments that represent funding for
them. The volume of assets and liabilities of a given maturity is depicted on figure 8.
Figure 8
Assets and Liabilities by maturity (nominal value) – data for the end of 2013
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Proceedings of 9th Annual London Business Research Conference
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Source: own calculations based on Polish FSA data.
It is worth mentioning that the Polish FSA introduced liquidity requirements much before
they will be officially implemented across the banking sector in the European Union.
Short-term liquidity will be measured by the liquidity coverage ratio (LCR), and long-term
liquidity will be monitored by the net stable funding ratio (NSFR). In order to satisfy LCR,
banks will have to maintain the appropriate level of high-quality liquid assets (HQLA),
which should at least be equal to “net total cash outflows over the next 30 calendar days“.
However, LCR will be implemented gradually (BCBS 2013, p. 2). In 2015 banks will be
obliged to maintain only 60% of the required value of HQLA. Full implementation is set for
2019. Actually the construction of M2 (i.e. one of the Polish liquidity standards) is similar
to LCR In case of long-term liquidity it is still uncertain when NSFR will be binding for
banks. The intention of Basel Committee on Banking Supervision is that the requirement
becomes implemented by 2018 (BCBS 2014, p. 2). But anyway, owing to the introduction
of liquidity standards the problem mentioned by Berger and Bouwman, and earlier by
Kashyap, i.e. the lack of liquidity measures, will soon be solved in the EU. Actually in
Poland this obstacle has been largely overcome in 2008.
It is also the National Bank of Poland (NBP) that was active in the beginning of the
financial and economic crisis. Owing to the central bank the commercial banks gained
access to Swiss franc funding that served to finance the mortgage portfolio denominated
in that currency7. In November 2008 NBP signed an agreement8 with the Swiss National
Bank (SNB) on currency swaps. Polish banks thus had an opportunity to exchange the
Polish zlotys to the Swiss francs (through the European Central Bank). The agreement
was only temporary, and the last swap transaction9 was carried out in January 2010.
Moreover, the problem of Swiss franc funding only referred to the limited number of
banks. The agreement was, however, renewed in June 2012 in order to protect the Polish
banking sector against possible tensions that could occur in the foreign-exchange market.
This time a direct agreement was signed between NBP and SNB. NBP also provided the
Polish banking sector with repo operations, in order to increase short-term liquidity.
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Proceedings of 9th Annual London Business Research Conference
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Similarly to the swap transactions, repo operations were only needed to selected number
of banks that lacked liquidity in the initial phase of the crisis. The actions of NBP and the
Polish FSA were thus complementary.
6. Summary and Conclusions
The scientific research on the topics that are mentioned in the paper concern the problem
of keeping liquidity buffer in banks strong enough. The banking sector should be prepared
to give up some of its profitability in order to maintain sufficient amount of liquid sources.
Banks in Poland became aware of possible liquidity shortages in Q4 2008, together with
the advent of the financial and economic crisis. Next, the fears came back in 2011, when
the sovereign crisis hit the euro area. The analysis for Poland reveals that between end
2007 and end 2013 the term deposits highly increased, i.e. by 125% in case of
households (especially for the maturities greater than 3M) and by 109% in case of nonfinancial corporations (especially for the maturities above 1M and up to 1Y). The
outcomes of the correlation analysis show vividly that changes in deposit volumes went
together with bank interest rate fluctuations, and the dependence is strong for the
maturities of up to 6M. The banks thus took adequate steps in order to deal with
temporary liquidity shortages. However, significant rises in bank interest rates did not lead
to substantial declines in profitability of banks in Poland vs. other EU countries. Another
factor supporting liquidity in Poland were the actions of the Polish FSA, which introduced
liquidity standards in 2008, as well as the operations performed by the National Bank of
Poland. Currently it is long-term funding that represents a challenge for banks, not only in
Poland.
End Notes
1
Actually in case of bank deposits WIBID 3M (Warsaw Interbank Bid Rate) would be
more appropriate as a reference rate. However, since bid rates are almost absent in core
economies, WIBOR has been used here.
2
Data for Greece have been excluded due to breaks in series. Croatia joined the
European Union in July 2013, so the data for previous years were not taken into
consideration.
3
Resolution No. 9/2007 of the Commission for Banking Supervision of 13 March 2007 on
the establishment of liquidity standards binding for banks.
4
Resolution No. 386/2008 of the Polish Financial Supervision Authority of 17 December
2008 on the establishment of liquidity standards binding for banks.
5
The construction of M1 and M2 is similar. In the first case there is a difference of two
aggregates, whereas in the second case there is a quotient. So, the fulfilment of M1 is
equivalent to the fulfilment of M2.
6
For example, in the end of 2013 M3 totalled 5.94.
7
In the end of 2013 40% of the household mortgage portfolio was denominated in Swiss
francs. This number has been gradually declining. In the end of 2009 it totalled 61%.
8
The NBP announcement of 7th November 2008.
9
The NBP announcement of 18th January 2010.
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