Kluczowe znaczenie stabilnego systemu bankowego dla szeroko rozumianej stabilności finansowej
The key role of the stable banking system for broaderfinancial stability

Summary/Abstract: Objective: To analyse the significance of the stable banking system for the broader financial stability. Research method: Literature-based analysis of cause-and-effect relationship between shocks in the financial system and the real economy, and their re-transmission via the financial system to the real economy. Results: The stability of the banking system is crucial for the effective operation of the financial system. Banks play the most important role in the process of financing the economy and handling financial settlements. The contemporary literature (Basel Committee, 2011) identifies three channels which transmit shocks from the financial system to the real economy and re-transmit shocks viathe financial system to the real economy, namely: (1) the structure of the borrower’s balance sheet, (2) the structure of the bank’s balance sheet, and (3) the financial liquidity. The transmission of shocks via the first channel (the structure of the borrower’s balance sheet, applicable to both companies and households) is caused by the lender’s incapability to exhaustively assess the borrower’s ability to repay debts, the lack of proper supervision over realised investments, and the borrower’s incapability to enforce full repayment of debts. The second channel (the structure of the bank’s balance sheet) comprises two sub-channels: banking loans and bank’s equity. Negative shocks in the structure of the bank’s balance sheet, which are caused by changes in monetary or other regulatory policies or losses in the bank’s equity, result in significant decrease in the supply of loans with further up-scaled effects for the economy. The prerequisite is the strong dependency of borrowers on banks resulting from the banks financing the borrowers. The current financial crisis has demonstrated the significant role of the financial liquidity for the ability of banks to expand their loan and credit offerings, further leading to stronger economic activity. Previously, the financial liquidity used to be considered an element strengthening the other shock transmission channels between the financial system and the real economy. In recent years, however, the liquidity channel is treated separately. The high financial leverage in banking institutions and the high assets-liabilities mismatch are the key drivers propagating the liquidity shocks in the real economy...

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