Cooperative Banking in Poland: A Post-Crisis Record of Stability and Efficiency

Abstract

The deregulation of financial markets over the two decades surrounding the turn of the 20th/21st century has dramatically influenced the scale and complexity of banking firms, and created strong incentives towards universalism and globalization. In the pre-crisis period, universal bank strategies were largely directed towards expansion, while business models were centered on operational efficiency accruing from new sources of profits and high leverage. The preferred bank business model before the crisis was that of universal (conglomerate) banking, where bank expansion was based on non-interest income and non-depository funding. The global financial crisis of 2008 highlighted the riskiness of that model, and demonstrated that in many cases benefits from diversification from traditional banking have been overstated. Moreover, the crisis forced banks and regulators to redefine their priorities; in the area of bank management, priority has shifted from profit maximization towards balance sheet soundness. The most frequent restructuring pattern for global banks has been partial or total nationalization, as a result of which large global banks have contributed to inflated budget deficits and escalating public debts in major countries. The global financial crisis, which reached its peak with the demise of the investment bank model in September 2008 (pinpointed by the collapse of Lehman Brothers) has called into question the future of specialised banking. With countless cases of nationalization or forced takeovers of failing banks, questions have been raised as to the size and scope of banking activities, to what extent national and local competition is important for bank efficiency and stability, and whether there is still a place for the locally-based cooperative banks.

After all, there is an element in the readjustment of our financial system more important than currency, more important than gold, and that is the confidence of the people.

Franklin D. Roosevelt, National Radio Address, 12 March 1933