CZECH REPUBLIC Law and Practice Contributed by: Tomas Sedlacek, Zdeněk Husták, Adam Nečas and Mikuláš Zacpal, BBH, advokátní kancelář, s.r.o.
7. Prudential Regime 7.1 Capital, Liquidity and Related Risk Control Requirements Prudential requirements for banks are stipulated in line with the CRR. Under Article 92 of the CRR, banks are obliged at all times to satisfy the fol - lowing own held funds requirements: • Common Equity Tier 1 capital ratio of 4,5%; • Tier 1 capital ratio of 6%; • total capital ratio of 8%; and • leverage ratio of 3%. In addition, the CNB imposes a benchmark countercyclical capital buffer ratio on a quarterly basis within a range of 0% to 2.5% of the total risk exposure in multiples of 0.25%. The CNB may also require a bank to maintain a capital buffer to cover systemic risk on an ongoing basis for all exposures or a subset of exposures. The CNB imposes the systemic risk capital buffer rate for all exposures or a subset of exposures in multiples of 0.5%. The com - bined systemic risk capital buffer rate should not exceed 5% of the total risk exposure. The CNB may also decide to require a bank that is a systemically important institution to maintain an additional capital buffer on an ongoing basis. Bank compliance with all of these requirements is subject to the ongoing monitoring and super - vision of the CNB. Banks are also subject to CRR liquidity require - ments that they maintain a liquidity coverage ratio. The general liquidity requirements under Article 509 of the CRR and the net stable fund - ing ratio (NSFR) are applied. However, the CNB may also impose additional specific liquidity
requirements, including limits on the maturity mismatch between assets and liabilities, taking into account the bank’s specific business mod - el, when this appears appropriate in light of the regular supervisory review. In addition, the requirements above are further expanded by a Decree on the performance of the activities of banks, which contains further rules for covering risks and risk management. 8. Insolvency, Recovery and Resolution 8.1 Legal and Regulatory Framework A default of a bank or other financial institution shall be resolved through a process of bank - ruptcy, while specific resolution and recov - ery procedures also apply. The resolution of a bank’s insolvency through reorganisation is not possible. An insolvency proposal requesting a resolution by process of bankruptcy must filed without undue delay by the CNB, as the compe - tent resolution authority. The recovery and resolution of a bank insolvency is governed by the RPCR Act, which, in particu - lar, regulates the: • essentials of planning, crisis management capability and intra-group support; • powers of the CNB to conduct an early inter - vention in the event of its finding deficiencies in the bank’s activities; • power of the CNB to place the institution under temporary administration by its nomi - nee, if necessary; • asset and debt valuation procedure and pre - liminary estimate; and • measures and activities used in resolving such bank crisis.
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