Author: Tomasz Blusiewicz
Harvard University
Advantages of Financial Backwardness:
Poland’s ‘Primitive’ Banking Sector and the Country’s Safe Passage Through the Global Financial Crisis
Prepared for Presentation: NORTHEAST SLAVIC, EAST EUROPEAN, AND EURASIAN STUDIES CONFERENCE
NEW YORK UNIVERSITY, MARCH 21, 2015
Abstract: Poland was the only EU country to avoid recession in 2009 – its GDP grew by 1.9 percent while the EU-27 averaged a decline of 4.3 percent and no other country recorded growth. Several explanations accounting for the singularity of the Polish case are in circulation. Some emphasize the possibility of a large fiscal expansion (budget deficit of up to 7.8 percent in 2008) that could be afforded thanks to the prior modest level of public debt (45 percent in 2007). Others point Poland’s large domestic consumption that helped to cushion the foreign shocks. The Polish Zloty (PLN) experienced the strongest depreciation of all CEE currencies in Q4 of 2008 and Q1 of 2009, strengthening the export sector. The Polish central bank (NBP) enjoyed the freedom to pursue active monetary policy and moved quickly to supply liquidity.
While all those factors certainly did play a role, there is one sector of the Polish economy that is truly unique in the region - the banking sector (PBS). As expressed by Marek Belka, the President of the NBP, during a lecture at Harvard in September 2011: there is “no point in denying [that the PBS is] primitive”.
This ‘primitiveness’ is well-visible in such indicators as the very low level of trade in securitized financial instruments, low indebtedness per household or low share of loans denominated in foreign currency.
There was no single bank default or bailout in Poland during the crisis. My research shows that the PBS was indeed the least ‘advanced’ among the new EU-12 members, which turned out to be an advantage since the relatively weak interconnectedness with global finance rendered the sector less vulnerable to the shocks of the crisis. I examine the characteristic features of the PBS in a comparative way in light of the transmission channels of the global financial crisis that did not, or did to a lesser degree, work in
Poland in contrast to other CEECs. I argue that the distinctive nature of the PBS has to be taken into consideration while explaining the relatively undisturbed passage of the Polish economy through the crisis.
1

I.
The Polish ‘Green Island’
Poland was the only member of the European Union to avoid recession in 2009 when its GDP growth equaled 1.9 percent while the EU-27 averaged a negative growth of 4.3 percent and no other country reported positive growth. Poland was also the leader in its region – other Central and Eastern European countries (further in the paper: CEECs) were in deep recession with a 7.1 percent average annual GDP decline. The second country to be least affected by the crisis was the wealthiest country of the region, the
Czech Republic, with a 4.1 percent decline. The Baltic countries, often painted as model pioneers of the transition in mid-2000s, saw a dramatic decline which surpassed 20 percent GDP decline on a quarterly basis 1 . Poland’s singularity has received considerable global attention and numerous explanations appeared to explain it. Some experts pointed to the role played by the possibility of high fiscal expansion and stimulus packages. Poland’s budget deficit grew to 7.3 percent in 2008 and 7.8. percent in 2009 2 which could be afforded thanks to the hitherto low levels of public debt (45 percent in 2007 and 51 percent in 2009) 3 . Others pointed to the fact that Poland has the largest domestic market in the region and that high domestic consumption helped to cushion the negative foreign shocks. Next, the Polish Zloty
(PLN) experienced the strongest depreciation among all CEECs currencies in Q4 of 2008 and in Q1 of
2009 4 . It helped the already booming export sector to pull the economy in its wake. Exchange with
Germany was the mainspring of the growing Polish export capacity in particular. The Polish central bank
(NBP) enjoyed the freedom to pursue an active monetary policy, unlike the Baltic countries or Slovakia which were then already tied to the ECB. The NBP reacted quickly to supply the market with the necessary liquidity while inflation stayed low due to the falling energy prices.
1 Narodowy Bank Polski, Analiza sytuacji gospodarczej w krajach Europy Środkowej i Wschodniej, NBP: Warsaw, June 2010, pages 5-6.
2 Eurostat, http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tsieb080&plugin=1
3 Tomasz Szkica and Robert Pater. Ocena Wplywu Kryzysu Finansowego na Stan Finansow Publicznych w Polsce, e-Finanse, vol. 6, nr 4. 2010, page
40.
4 Narodowy Bank Polski, Polska Wobec Swiatowego Kryzysu, NPB: Warsaw, September 2009, page 16.
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While all of those factors certainly mattered, all four of them can be presented with counterarguments that question their explanatory power by showing that none of them was specific to Poland. To give a few examples:
1) Numerous other countries had higher budget deficits (30 percent in Ireland in 2010, almost 10 percent in Latvia and Lithuania in 2009) 5 , lower public debt and a sounder record of fiscal discipline
2) Ukraine and Russia have larger domestic markets. Furthermore, aggregate domestic demand fell in
Poland by 1.1 in 2009 in comparison to 2008 6
3) The flight from local currencies has been perceived by some authors as the main cause behind the banking crisis in the CEECs 7 . In Poland similar concerns were voiced due the high number of mortgage loans denominated in the Swiss Frank
4) Central banks in other countries reacted similarly; in fact the NBP’s actions were a part of a larger international initiative – the Vienna Initiative.
The one aspect of the Polish economy that truly stands out in comparative international analysis is the banking sector. The evidence presented in this paper makes it possible to argue that the Polish Banking
Sector (further in the paper: PBS) was among the least ‘advanced’ 8 among the new EU-12 members 9 and that this fact turned out to be an advantage as the PBS’s relatively weak interconnectedness with global finance rendered the sector less vulnerable to the external shocks following the collapse of the Lehman
Brothers. As it was expressed by the President of the Polish central bank, Marek Belka, in a speech at the
Center for European Studies at Harvard University in September 2011, the PBS sector is aptly
5 Eurostat, http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tsieb080&plugin=1
6 Narodowy Bank Polski, Analiza sytuacji gospodarczej, page 34
7 See: Section II.
8 For what is meant by the term ‘advanced’, please see: Section III.
9 Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary, Slovenia, Romania, Bulgaria. For self-evident reasons, I exclude Malta and
Cyprus.
3

characterized by the word “primitive” 10 . This primitiveness is manifest through many indicators such as the very low level of trade in securitized financial instruments, low indebtedness per household or the low share of loans denominated in foreign currencies. The fact that there was no single bank default or bailout in Poland during the crisis in also unique in the EU context. In this paper, I examine the characteristics of the PBS and compare them internationally. I suggest several channels of transmission of the global financial crisis that did not, or did to a lesser degree, occur in Poland in contrast to other countries of the region.
II.
Global Trends, Crisis and the Vienna Initiative
Financial integration with world markets in Central and Eastern Europe in the 2000s proceeded rapidly. Slovenia was the only country where foreign capital owned less than 50 percent of the banks by
2006. In the Baltic countries this ratio reached 90 percent 11 . This process brought quick and tangible benefits. The easier and cheaper access to private consumer and mortgage loans was perhaps the most visible and popularly recognized. Especially after 2002, when interest rates both in Europe and America remained on historically low levels for several years, an unprecedented wave of credit expansion followed in Central and Eastern Europe with a peak in 2007. It was accompanied by a removal of capital flow restrictions in the forex markets which made it possible to offer loans to local customers denominated in the Euro or the Swiss Franc. Mortgage loans denominated in the Franc, for example, were offered at a significantly lower interest rates than those in the local currencies. This differential drove the share of foreign currency loans to unprecedented highs: 80 percent in Estonia and Latvia and 60 percent in
Bulgaria, Hungary, Lithuania and Romania while it did not exceed 25 percent in Poland 12 . In addition, the loan-to-deposit ratio began to look unstable, especially in Latvia where it reached a ratio of 3 to 1 in
10 Marek Belka, The 2011-12 August Zaleski Lecture: “European Dimensions of the Global Financial Crisis”, Harvard University, 09.26.2011.
11 Tigran Poghosyan and Arsen Poghosyan, Foreign bank entry, bank efficiency and market power in Central and Eastern European
Countries. Economics of Transition, Volume 18 (3) 2010, page 573.
12 Malgorzata Iwanicz-Drozdowska, Integracja Rynkow Finansowych w Unii Europejskiej, Warsaw: Narodowy Bank Polski, 2009, pages 10 -13.
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2009 13 . In consequence, the Eastern European local daughter banks became critically dependent on
Western mother banks for financial support and were unable to attract sufficient funds from the local markets to continue the expansionary policy in a self-sufficient manner. In Poland the situation was different because the total volume of loans became higher than the total volume of deposits only after
July 2009.
The expansion in the CEE markets was conducted only by some Western banks. It included primarily fifteen Western European banks from seven countries – Austria, Belgium, France, Germany, Greece, Italy and Sweden 14 . Citigroup was the only US institution that entered the CEE market on a larger scale. Capital from Austria, Belgium, Italy and Sweden in particular became heavily involved. In Austria, with the
Raiffeisen bank playing the leading role, the local banks had lent to Eastern Europe an equivalent of 70 percent of the Austrian GDP 15 . The ratio for Sweden and Belgium reached 20 percent 16 . According to
Pisani-Ferry and Sapir (2009), the financial sector bailouts in France and Germany accounted for less than
2 percent of each country’s GDP, 3 percent in the UK, 4 percent in Ireland and Belgium and 6 percent for the Netherlands and Luxemburg. “Austria, a small country whose banks are heavily exposed in Central and
Eastern Europe, has already committed some 5 percent of GDP.” 17 Overall, CEECs had borrowed a total of around 1.7 trillion USD abroad between 2002 and 2009; in 2009 the aggregate volume that either CEECs banks or their customers had to repay or rollover reached 400 billion USD or one-third of the region’s
GDP 18 .
The problem had its global and local dimensions. Western European banks and their CEE subsidiaries were deep into trade in securitized and parceled ‘subprime’ loan derivatives as was everyone else to a greater or lesser extent. Locally, following the growth of risk-averse market sentiment in Q4 of 2008,
13 Ibidem, page 7.
14 Aslund, Anders. The Last Shall be the First : The East European Financial Crisis, 2008-10. Washington, DC: Peterson Institute for International
Economics, 2010, page 70.
15 Ibidem, page 70.
16 Ibidem, page 71.
17 Pisani-Ferry, Jean and Adam Simon Posen. The Euro at Ten : The Next Global Currency? Washington, DC: Peterson Institute for International
Economics, 2009, page 79.
18 Aslund, The Last Shall be the First, 70.
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investors rapidly withdrew capital from the emerging markets (see: Chart 1.). In consequence, the free floating CEE currencies were hard hit. For example, the Polish Zloty had depreciated by almost 90 percent between July 2008 and February 2009 19 . This development led to growing anxiety concerning the CEE customers who took loans in foreign currencies since a vast majority of them did not purchase insurance against currency rate fluctuations.
Many experts feared that the number of defaults would be very high leading to a bank failure mechanism similar to the subprime housing mortgage spiral in the US. In the early months of 2009 the
Western press was flooded with articles prophesizing the coming of financial doomsday:
“The long ticking bomb of Eastern European debt is starting to explode with an even greater inevitability as that of subprime mortgages exploding in the United States […].
[Is] Latvia the Next Iceland?
The situation has reached such a crisis point in Latvia that anyone that reports on the truth is being arrested by the Latvian security forces as an on omen that economic turmoil means a return toward tyranny […]; the
Latvian secret police arrested Dmitrijs Smirnovs, a university professor for delivering gloomy forecasts on the prospects for the Latvian economy and the state of the Latvian banking system.” 20
From a different article:
“The dimension of the Eastern European emerging loan crisis pales anything yet realized. It will force a radical new look at the entire question of bank nationalizations in coming weeks regardless what nice hopes politicians in any party entertain. According to my well informed City of London sources, the new concerns over bank exposures to Eastern Europe will define the next wave of the global financial crisis, one they believe could be even more devastating that the US subprime securitization collapse [...]. Austria’s largest bank, Bank
Austria [...] faces what the Vienna press calls a ‘monetary Stalingrad’ over its loan exposure in the east. [...]
According to estimates published in the Vienna financial press, were only 10 percent of the Austrian loans in the east to default in coming months, it ‘would lead to the collapse of the Austrian financial system.’ The EU’s
European Bank for Reconstruction and Development (EBRD) in London estimates that bad debts in the east will exceed 10 percent and ‘may reach 20 percent’.” 21
19 http://www.money.pl/pieniadze/forex/waluty/forex,usdpln.html
20 Ibidem.
21 F. William Engdahl, Next Wave of Banking Crisis to come from Eastern Europe, Global Research, 02.18.2009.
6

Chart 1. Net capital and bank cross-border flows, 2006-2009 22
In the end it turned out that such voices were exaggerated, but they did sound realistic during the nadir of the crisis in February and March of 2009. A month earlier, in January, the problem had been noticed by the European Bank for Reconstruction and Development and the IMF, which invited the representatives of the World Bank, the European Commission, the European Investment Bank, central bankers, governments and supervisory bodies to Vienna to discuss how to address it. In the words of an
EBRD official: “in the spirit of this cooperation the Joint Action Plan of EBRD, EIB and World Bank Group was launched in February with the aim of providing 25 billion EUR to banks in the region and for lending to the real economy in 2009-2010” 23 . Besides this large reserve liquidity pool, a 250 million EUR facility was created to provide on-going liquidity for bank customers who have been negatively affected by adverse market conditions. Other stability-aimed actions that are worth mentioning included:
22 Blanchard, Olivier et. al., "The Initial Impact of the Crisis on Emerging Market Countries." Brookings Papers on Economic Activity (Spring, 2010), page 279.
23 Thomas Mirow, The role of the EBRD in overcoming the financial crisis in Central and Eastern Europe, speech at the Joint Vienna Institute,
Vienna, 07.24.2009
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 A 432 million EUR loan to the subsidiaries of the Italian Unicredit across eight CEECs to support the financing of small and medium sized enterprises, lease finance and energy efficiency projects in the region
 Significant equity investment in Latvia’s Parex Banka (nationalized in November 2008) to help restructure the bank’s corporate governance and readjust its business structure
 A 200 million EUR loan to MOL, Hungary’s leading energy company, to finance the completion of a strategic gas storage facility in the southern part of the country 24
Apart from providing liquidity, it was critical to offer a legal guarantee ensuring that the bailed out western banks would not be compelled to abandon their CEE subsidiaries. In March 2009, the European
Council summit concluded that domestic bank support packages would not be restricted to operations in their respective home markets 25 . The Vienna initiative also encouraged CEECs to apply for the IMF standby program and the Flexible Credit Line, which Poland did in May 2009. Finally, the EBRD and the IMF held separate meetings with the major Western European banks and tried to persuade them to refinance and recapitalize the banking system in the countries where their subsidiaries were operating, which was largely met with a positive response.
26
Thanks to the coordinated international effort in which multiple institutions participated in a determined way, a breakdown of the banking system in CEE was avoided. It came at a cost however, the most important being the sudden halt to the expansionary credit policy and cutting the local enterprises off from the cheap source of finance that they had been relying before the crisis. This contraction also did take place in Poland, but it was by far the least pronounced in the region – the amount of credit on the market almost stopped growing for several months, but it did not record a single monthly contraction as it was the case everywhere else in CEE. In the Baltics, the annual growth rate of aggregate credit volume fell from 60 percent in 2006 to negative single digits in 2009. A decline reaching 10 percent was recorded in
24 Ibidem.
25 Narodowy Bank Polski, Annual Report 2009, NPB: Warsaw, 2010, page 72.
26 Ibidem, page 73.
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Romania and Bulgaria 27 . In Poland, this figure was equal to 24 percent in July 2009 (compared to July
2008) which was three times higher than the regional average. The inflow of capital (net bank transfers and commercial credits) in Poland fell from 6.5 percent in the first half of 2008 to 1.8 percent of GDP in Q1 of 2009. In Latvia, for example, the net outflow of capital was equal to 21 percent of GDP for the same period.
28 An analysis of the structural characteristics the PBS on the eve of the crisis is critical in explaining why no net capital outflow had been recorded in Poland.
III.
The Polish Banking Sector
The PBS had undergone a process of ownership transformation reflecting the broader regional trends.
Big multinational corporations such as Raiffeisen, Unicredit, ING or Citigroup entered the market in the late 1990s and helped to privatize the state owned banks. The share of foreign bank capital in Poland reached approximately 70 percent in 2007 – a figure close to the regional average 29 . The domination of the foreign capital posed precisely the kinds of problems addressed by the Vienna Initiative. However, there was a marked difference in the degree to which the process of financial integration and the so-called
‘financial deepening’ took hold in Poland compared to other countries of the region.
First of all, the ratio of bank-held assets to GDP was the second lowest in the EU-27:
27 Narodowy Bank Polski, Polska Wobec Swiatowego Kryzysu, pages 15-16.
28 Ibidem, pages 15-20.
29 Ibidem, page 25.
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2550
2050
1550
2 533
1050
550
50
59 77 85 92 107 108 110
130 133 155 160 167
217 255 270
281 312 329
353 392 392
430
500
588
700 715
Chart 2. Banking Sector Assets as a share of GDP, percent values.
30
The chart above reflects the patterns of financial deepening in Europe. The relatively high figures for
Estonia (133 percent) and Latvia (155 percent) merit special attention. In general, one can argue that the lower the ratio the lower the impact that a financial crisis can potentially deliver upon the ‘real’ economy.
Next, the share of loans extended in foreign currencies as of 2007 is depicted in the chart below:
30 Source: Malgorzata Iwanicz-Drozdowska, Integracja Rynkow Finansowych, page 11
10

Chart 3. Share of Foreign Currency Loans in 2007, percent values 31
With the low ratios in Poland, Czech Republic and Slovakia, it is unsurprising why some observers predicted a ‘monetary Stalingrad’ to occur in the Baltics or Hungary, but not in Poland. The Baltic countries are a special case here because all three of them had their currencies in some ways pegged to the Euro; it is thus Hungary that emerges as the most vulnerable case, in particular because the Hungarian Forint depreciated on the scale comparable to the Polish Zloty.
The table below is equally indicative. It depicts the total amount of outstanding commercial loans as a share of GDP in 2008. Two issues are especially striking. First, the Polish ratio was the lowest in the
EU, lower than in Romania and significantly lower than in Hungary and the Baltics. The second is the particularly high levels in Ireland, Spain, Portugal and the relatively low level in Germany. This observation provides a hint about how the rapid economic growth in those countries (especially in Ireland and Spain) in mid-2000s had been financed and where the source of the credit and housing bubble in 2007/2008 originated. The low level of credit-financing of enterprises in Poland suggests that the high GDP growth
31 Source: Anders Aslund, The East European Financial Crisis, page 13
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before the crisis (6.2 percent in 2006, 6.8 percent in 2007) was less dependent on the availability of credit than elsewhere. It also implies that any negative shock in the financial sector should have had a less pronounced impact on GDP growth.
160
140
120
100
80
60
40
20
0
Chart 4. Commercial loans as a share of GDP, percent values.
32
The analysis of the liability structure of the CEECs banking sector balance sheets as of March 2009 conducted by the World Bank (2009) revealed several characteristics of the PBS through which it could be considered as less innovative than other banking sectors in the region. In Poland, the share of equity in the liability structure was the lowest among CEECs (apart from Romania) and was in the single digits, while in other CEECs it was above 10 percent. The emulation of the US model of credit expansion in the housing and construction industry was also less pronounced in Poland. The Polish ratio of mortgages as a share of household lending was around 50 percent in 2008 compared to 80 percent in Estonia and Latvia and 70
32 Source: Anders Aslund, The East European Financial Crisis, page 15.
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percent in Czech Republic. The aggregate household indebtedness ratio in Poland was significantly lower than the region’s average, respectively 48 and 76 percent of GDP. The share of parent bank debt funding was the lowest and negligible in Poland while in Lithuania and Estonia it reached 50 percent, and 25 percent in Hungary 33 . This means that the Polish daughter banks did not require external funding from the mother companies, at least not during the initial stage of the crisis. Next, the ratio of liquid assets to total assets in March 2009 was also the lowest in Poland (next to Ukraine) and was below 5 percent – an indication that conservative and long-term investment strategies were preferred. An analysis of the sectoral composition of loans in March 2009 reveals that Poland had the lowest proportion of loans extended to the corporate sector and the highest going to households of all surveyed countries. Finally, in
2007 Poland had the second lowest share of Euro-denominated deposits among CEECs, by a fraction of percent higher than in Ukraine 34 . All these as well as other facts were summarized by the World Bank researchers in the following table:
Bank funding /
Credit growth
Convergent*
Wholesale
X
Gray Area
Hungary
Parent bank
Croatia
Serbia
Resident
Deposits
Czech and
X
Lower risk
Slovak
Republics,
Poland
Macedonia, FYR Gray Area
Romania Higher Risk
X
Excessive**
X
Kazakhstan
Russia
Low Stability
Ukraine
Latvia
Gray Area
Bulgaria
Lithuania,
Estonia
Medium
Stability
High Stability X
Table 1. Credit market characteristics in financially integrated countries 35
* Countries experiencing credit growth rates that could be viewed as in line with those countries with similar initial rations of private sector credit to GDP.
** Countries experiencing credit growth rates that could be considered as above average; that is, their credit growth rates are higher relative to their initial rations of credit to GDP
33 Mitra, Pradeep, Marcelo Selowsky, and Juan Zalduendo, Turmoil at Twenty, pages 48-109.
34 Pisani-Ferry, Jean and Adam Simon Posen, The Euro at Ten, page 131.
35 Source: Mitra, Pradeep, Marcelo Selowsky, and Juan Zalduendo, Turmoil at Twenty, page 10.
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Poland fell into the most stable category both because credit expansion was not excessive and because it was paralleled by growth in the volume of resident deposits. In Hungary, for example, credit expansion was also not considered excessive, but it was not accompanied by sufficient growth in deposits while
Estonia and Lithuania relied on parent bank funding to sponsor the expansionary credit policy.
The data presented above is stylized and general in nature and requires more detail to facilitate an analysis of the internal workings of the crisis transmission mechanisms into the PBS. However, it is possible to conclude that it differed significantly from the more innovative and expansionary policies conducted in other CEE countries, especially in the Baltics and Hungary. As it was put by Witold Koziński, a senior official from the NBP: the PBS was involved in a rather “traditional banking activity model. Local banks were not invested in […] the complex structured financial instruments [and therefore] the size of their exposure to the US subprime market risks, either in the form of holding structured financial instruments or other instruments issued by the largest investment banks, was negligible.” 36 It is a matter for further debate whether this phenomenon is more aptly captured by terms such ‘backwardness’,
‘conservatism’, ‘sound financial principles’ or other, but the point remains that it rendered Poland, more than any other country in the region, less vulnerable to the financial crisis of 2008/2009.
Nonetheless, the relatively less advanced characteristics of the PBS and of the Polish economy in general do not take credit away from the sound borrowing practices of Polish consumers and firms as well as from the policies of private banks, the central bank or the government. The PBS had been steadily accumulating high profits on the eve of the crisis (See: Table 3. and Table 4.). Even in 2008, Polish banks reported high earnings that supplied a buffer helping to amortize the negative external shocks. The quality of mortgage loans remained safe – only 1.4 percent of such loans were evaluated as ‘dysfunctional’ in
September 2009 37 .The overall satisfactory PBS performance might in turn serve to explain the relative lack of incentives to engage in operations carrying higher risk premiums.
36 Witold Kozinski, The international banking crisis and domestic financial intermediation: the experience of Poland, BIS Papers No. 54, 2009, page
343.
37 Ibidem, page 343.
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Table 2. Profitability and capital adequacy of the Polish banking sector, 2006-2009 38 .
Furthermore, the interbank market in Poland did not cease to operate in Q1 of 2008, like it did in most other countries in Europe, even while reporting a total decrease of operations reaching 10.3 billion
PLN between August 2008 and December 2008.
39 Due credit has to be given to the NBP for the timely supply of reserve liquidity. As it was expressed by one of the leading experts on the CEECs postcommunist economic transition, Anders Aslund: “the NBP leaned against the wind, when it perceived that asset prices, notably housing prices, were rising too steeply. […] With its stellar monetary policy for many years,
Poland could get away with a comparatively large budget deficit 40 . In addition, in contrast to other CEECs,
38 Source: Witold Kozinski, The international banking crisis, page 346.
39 Ibidem, page 344.
40 Anders Aslund, The East European Financial Crisis. CASE Network Studies & Analyses No.395, 2009, page 19.
15

the NBP limited the volume of mortgages in foreign currency by a set of regulations before the crisis 41 . In early 2009, the NBP increased the volume of REPO operations (they could be renewed with the same collateral) and introduced foreign exchange swap operations. The minimum required reserve rate was reduced and the NBP allowed investors to redeem their NBP bonds before they matured. In terms of providing liquidity – the category of assets accepted as collaterals for loans was broadened and the short term/long-term refinance operations price differential was decreased 42 . Alongside the technical innovations, the reference interest rate was decreased from 6 percent to 3.5 percent in June 2009, the lowest level in history. Poland has also applied and has been accepted to the Flexible Credit Line program run by the IMF, which had an immediate effect on the market risk perception allowing the Zloty to recover almost half of its loses since September 2009 43 . Most of those measures were to a large extent a copy of what the ECB was doing, but were nonetheless applied timely and with determination. NPB also occasionally used its Europe’s largest foreign currency reserve (76 billion USD in 2008) to intervene in the forex market to prevent Zloty’s speculative depreciation. The fact that Poland owns such a sizeable monetary reserve (15 th largest in the world) can be again interpreted either as a mark of prudence or backwardness. The immediate company of Libya, Mexico, Thailand and Malaysia and Algeria in this ranking (10-14 th places respectively) perhaps supports the latter, but the size of the Polish economy renders nominal comparison with other CEECs skewed in this context.
IV.
Conclusion
This paper’s comparative examination of the PBS is an overview and facilitates only tentative conclusions. Nonetheless, the primary role of the distinct features of the PBS as an explanatory factor behind the unique experience of the 2008/2009 crisis in Poland is beyond doubt. It is highly likely that the
41 Leszek Balcerowicz in: Pisani-Ferry, Jean and Adam Simon Posen, The Euro at Ten, 193.
42 Narodowy Bank Polski, Annual Report 2009, pages 52-53.
43 Narodowy Bank Polski, Polska Wobec Swiatowego Kryzysu, page 40.
16

causal relationship between the PBS and the overall performance of the Polish economy was primarily negative and only partially positive. In other words, it was the lack of (or weak) presence of certain global trends in financial markets that constituted the underlying reason for the particular structural characteristics of the PBS on the eve of the crisis. The sound financial standing of the Polish banks in as well as the actions undertaken by the NBP and other authorities at home and abroad had a mitigating, but not decisive, effect.
A more positive interpretation suggests that the PBS presents a rare case of conservative financial prudence in the midst of unorthodox and eventually destabilizing practices imported from North America.
The pace of Poland’s postcommunist ‘shock therapy’ and the general openness of the country to Western capital and ideas render such an interpretation questionable. A more negative interpretation is that the less innovative structure of the PBS was a reflection of certain intrinsic features of the Polish economy as a whole and in particular the low level of commercial credit and the traditional strength of small business relying on internal financing and domestic consumption. A close study of institutional and consumer behavior is required to fill the macro perspective sketched in this paper with empirical evidence to provide a finer picture explaining how the Polish ‘green island’ weathered the global financial crisis.
17

List of references
Secondary Sources:
1.
Aslund, Anders. The Last Shall be the First : The East European Financial Crisis, 2008-10.
Washington, DC: Peterson Institute for International Economics, 2010
2.
Iwanicz-Drozdowska, Malgorzata. Integracja Rynkow Finansowych w Unii Europejskiej, Warsaw:
Narodowy Bank Polski, 2009
3.
Mitra, Pradeep, Marcelo Selowsky, and Juan Zalduendo. Turmoil at Twenty : Recession, Recovery,
and Reform in Central and Eastern Europe and the Former Soviet Union. Washington, DC: World
Bank, 2010
4.
Pisani-Ferry, Jean and Adam Simon Posen. The Euro at Ten : The Next Global Currency?
Washington, DC: Peterson Institute for International Economics, 2009
Journal Articles:
1.
Aslund Anders. “The East European Financial Crisis.” CASE Network Studies & Analyses No.395,
2009
2.
Blanchard, Olivier et. al. "The Initial Impact of the Crisis on Emerging Market Countries." Brookings
Papers on Economic Activity (Spring, 2010).
3.
Kozinski, Witold. “The international banking crisis and domestic financial intermediation: the experience of Poland.” BIS Papers No. 54, 2009
4.
Pater, Robert and Tomasz Szkica. “Ocena Wplywu Kryzysu Finansowego na Stan Finansow
Publicznych w Polsce.” e-Finanse, vol. 6, nr 4. 2010
5.
Poghosyan, Tigran and Arsen Poghosyan, “Foreign bank entry, bank efficiency and market power in Central and Eastern European Countries.” Economics of Transition, Volume 18 (3) 2010
Press articles:
1.
Engdahl F. William. Next Wave of Banking Crisis to come from Eastern Europe, Global Research,
02.18.2009
2.
Walayat Nadeem. Subprime Eastern Europe to Bankrupt Western European Banks, Market Oracle,
03.04.2009
18

Reports of the Narodowy Bank Polski:
1.
Narodowy Bank Polski, Analiza sytuacji gospodarczej w krajach Europy Środkowej i Wschodniej,
NBP: Warsaw, June 2010
2.
Narodowy Bank Polski, Polska Wobec Swiatowego Kryzysu, NPB: Warsaw, September 2009
3.
Narodowy Bank Polski, Annual Report 2009, NPB: Warsaw, 2010
Speeches:
1.
Belka, Marek. The 2011-12 August Zaleski Lecture: “European Dimensions of the Global Financial
Crisis”, speech at Harvard University, 09.26.2011
2.
Mirow, Thomas. The role of the EBRD in overcoming the financial crisis in Central and Eastern
Europe, speech at the Joint Vienna Institute, Vienna, 07.24.2009
19