Banking in the Czech Republic - from crises to stability

The transition period towards a market economy in the Czech Republic was accompanied by unfavourable effects on the banking system. Many small banks fell into trouble, and problems accumulated in the largest banks.

Zbyněk Revenda

Prague University of Economics

Ngày nhận: 13/09/2019 Ngày nhận bản sửa: 22/10/2019 Ngày duyệt đăng: 22/10/2019

Abstract: The transition period towards a market economy in the Czech

Republic was accompanied by unfavourable effects on the banking system

Many small banks fell into trouble, and problems accumulated in the

largest banks The central bank was first involved in the resolution of

banking crises as a lender of last resort, though its role was gradually

taken over by the state The last economic and financial crisis had only

limited impact Together with the changing banking system, the monetary

policy of the central bank also evolved from the monetarist transmission

mechanism to inflation targeting Three main areas are theoretically and

practically analysed, including the Central bank’s role in rescuing the

banks, the link between monetary policy and the profit or loss of the Czech

National Bank, and the impact of a specific form of quantitative easing on

the Czech banking system

Key words: banking regulation and supervision, central bank, crisis, lender

of last resort, monetary policy.

Vai trò của Ngân hàng Trung ương Cộng hòa Séc- từ khủng hoảng đến ổn định hệ thống

Tóm tắt: Thời kỳ chuyển đổi sang nền kinh tế thị trường tại Cộng hòa Séc có những tác động bất lợi đối với

hệ thống ngân hàng Nhiều ngân hàng nhỏ rơi vào rắc rối, các vấn đề tích tụ ở các ngân hàng lớn nhất Ngân hàng Trung ương Séc lần đầu tiên tham gia vào việc giải quyết khủng hoảng ngân hàng với tư cách là người cho vay cuối cùng Cùng với sự thay đổi hệ thống ngân hàng, chính sách tiền tệ của ngân hàng trung ương cũng chuyển đổi từ cơ chế truyền tiền tệ đến mục tiêu kiểm soát lạm phát Bài viết này phân tích 3 vấn đề chính trên khía cạnh lý thuyết và thực tế, bao gồm vai trò của Ngân hàng Trung ương trong việc giải cứu các ngân hàng, mối liên hệ giữa chính sách tiền tệ và những được mất của Ngân hàng Quốc gia Séc, tác động của một hình thức nới lỏng định lượng đối với hệ thống Ngân hàng Séc.

Từ khóa: quy định và giám sát ngân hàng, ngân hàng trung ương, khủng hoảng, người cho vay cuối cùng, chính sách tiền tệ.

Professor Zbyněk Revenda, Dr Ing.

Email: zbynek.revenda@vse.cz

Đại học kinh tế Praha, Cộng hòa Séc

1 Introduction 1

The Czech Republic, one of the two

suc-cessor states of former Czechoslovakia,

continued in its transformation from a

former centrally planned and directly

controlled economy to a modern market

economy following the split of the country

on 1 January 1993 Key monetary issues

related to the split were solved without

any major problems Federal currency was

replaced with the Czech currency, and the

exchange of money in circulation went

quickly and efficiently The split of the

federal central bank’s assets occurred in a

similarly smooth way

The Czech National Bank (Česká národní

banka, CNB) started its activities on

1 January 1993 as the central bank of the

Czech Republic It is also the supervisor

of the Czech financial market (since April

2006) and has the main role as the Czech

resolution authority (since 2013) It must

be noted, that its predecessor, the State

Bank of Czechoslovakia (Státní banka

Československá, SBCS), was - until the

banking reform (1 January 1990) - a

com-pletely different central bank: it acted as a

“socialist“ institution under the conditions

of a centrally planned economy The other

five banks existing at the time in the

coun-try could not be considered commercial

banks, they rather operated as specialized

branches of the central bank (Vencovský

et al., 1999).

The major problems of the banking

sys-tem at early ninetees were associated

with loans provided to state-owned

en-terprises and agricultural cooperatives in

the economic environment of the

previ-1 The article was written within the project VSEIP

100040, University of Economics, Prague.

ous socialist era It must be noted that Czechoslovakia maintained the highest level of nationalization of all countries of the socialist block including the USSR In most cases, non-performing loans could

be sorted out in two basic ways - through

an “inflationary process“ (with negative impacts on value) or using the state bud-get Czechoslovakia and subsequently the Czech Republic used the latter approach, namely after the specialized Consolidation Bank was established in 1991

The slow development of the necessary rules for banking, lack of experience with banking supervision, economic develop-ment including the wide-ranging priva-tization, and the moral hazard and greed always present in the banking business can

be considered the causes of the first seri-ous crisis phenomena in the Czech bank-ing system

The benevolent approach of the central bank to granting banking licenses was another important reason for the banking crisis The total number of banks increased from 5 to 55 in the period 1990 through

1994 Following a virtual moratorium on new banking licenses (1994 - 1998) saw just seven (!) exceptions: the Czech Ex-port Bank, two branches of foreign banks, and four building societies In total, 51 banking institutions operated in the Czech Republic in mid-2019 Later in the 1990s, the political pressure on the then state-owned banks to “fund transformation and privatisation“, contributed to the above-mentioned development

The development of monetary policy was also linked to the transitive economic

peri-od both in terms of the related procedures and the used instruments Nevertheless,

the Czech National Bank still focused on

price stability as its main goal, until 1998

jointly with the exchange rate stability

This article mainly focuses on changes

in the approach to the solution of

bank-ing crises and monetary development in

the Czech Republic Since May 2004, the

Czech Republic is a member of the

Euro-pean Union (EU) With its admission, the

country accepted the obligation to join and

implement the common currency,

how-ever, with no specific deadline Currently,

the prospects of Euro adoption do not

enjoy much political support

The second part of the article covers the

theoretical framework behind the

ap-proach to problem banks Following part

contains description of crises, solutions

specific to the Czech economy and later

developments The fourth part deals with

monetary policy including its specific

form - quantitative easing (QE) The next

section provides an analysis related to the

development of the Central Bank’s

perfor-mance and its balance sheet The final part

contains summary and main conclusions

2 Theoretical framework

The term “banking crisis“ is not

consis-tently defined, see e.g (Kindleberger,

2000; Mishkin, 2013) For the purposes of

this article, the banking crisis is defined as

a situation when a higher number of small

(and mid-sized), or even large, banks have

solvency problems In a broader sense,

insufficient liquidity of the banking system

as a whole is considered a crisis

Key principles underlying the central

banks’ approach to resolving banking

crises were laid down by Henry Thornton

in 1802, however, Walter Bagehot, who published principles of assistance to dis-tressed banks in 1873, won a much bigger reputation The 20th century reality - as well as the current experience - differs a lot, though The central bank should -(1) be a single lender of last resort in the banking system;

(2) provide an emergency loan only to

a bank in temporary liquidity problems, under the conditions that such a loan is:

- secured by a purchase or pledge of suf-ficiently liquid and high-quality securities, i.e., securities comfortably tradeable prior

to a banking panic; and

- exclusively short-term;

(3) burden the emergency loans with rates above the market interest rates, to discour-age banks able to tap the financial markets from relying on the central bank’s assis-tance;

(4) announce the three principles above

in advance, and comply with them strictly during the banking crisis;

(5) strictly avoid and deny assistance to insolvent banks: such banks must be either sold at a market price or liquidated - the ultimate losses must be primarily borne by the shareholders

The current practice of the developed countries gives evidence on frequent non-compliance with the set principles Large banks, or banks with State ownership, are assisted by the State A similar approach holds for situations where there are a

larg-er numblarg-er of troubled banks Sufficiently credible security for emergency loans may limit the amount of necessary assistance and, thus, the loans frequently run over relatively long periods2 Penalty rates must

2 The credit union sector fell – just three years after its re-opening - into a deep and lasting crisis at the end

of the 20th century Losses reached 85% of assets (!) Only 10 out of 135 credit unions operate at the market

not complicate the repayment of loans

Just the opposite: in crises, interest rates

are very low and real rates may be even

negative Strict compliance with the set

principles may prove questionable

dur-ing a particular crisis On the other hand,

changing the principles during a crisis

raises doubts about the rationale for their

setup Compare e.g provision or refusal

of an access to the “discount window” to

the largest American investment banks in

2008

Disposals or closures of insolvent banks

may appear difficult with respect to the

potential impact on the credibility of the

banking system, losses on customers’

de-posits (mitigated or neutralized by

insur-ance) and so on In addition, an accurate

demarcation between still solvent and

al-ready insolvent banks may be problematic

The role and tasks of central banks in

crisis management are under discussion,

in particular following the development

of the post-2007 crisis, both in

theoreti-cal terms and in practice when setting up

respective legislation The focus is

pri-marily on the “too-big-to-fail banks“, or,

in a new politically correct language, the

“systemically important financial

institu-tions“, and on the limits to the central

banks’ assistance within the Bagehot’s

principles; compare e.g potential

adjust-ments to the “Dodd-Frank Act“ in the U.S

(Hoenig, 2017; Financial Choice Act,

2018) In broader terms, the discussion

deals with the “too-big-to-fail financial

institutions and/or government-sponsored

enterprises“; see e.g (Poole, 2005; Vives,

2010; El-Erian, 2012)

In the Czech Republic, as an EU member,

now.

the regulation of (not only) banking must comply with the respective EU Directives Key regulatory changes address - accord-ing to the author of this article correctly

- the primary responsibility of the share-holders, and, therefore, lead to minimi-zation of the hard-to-defend approach

of “privatizing profits and nationalizing losses” Solutions of the overall banking crises - not the problems of individual banks - remain very controversial, at least from the theoretical point of view Here, a higher level of compliance with Bagehot’s principles is concerned, at least as regards the role of the central banks Namely the last rule on liquidation or sale of insolvent banks is “modified“ by the existence of the European Stability Mechanism (ESM) Here, the author appreciates the pres-sures on increases in the banks’ minimum capital adequacy including the discretion

of the national central banks regarding the requirements for the countercyclical capital buffer

Fundamental regulatory changes, driven

by BASEL III, are accepted in EU coun-tries In the U.S., certain issues, such as whether the capital adequacy as a percent-age should be related to the total assets (+ limits of financial derivatives), at the minimum level of 10 % (Hoenig, 2017), or

to the risk-weighted assets (+ market risk + operational risk) as is the practice so far, are still discussed

3 Overview of banking crises in the Czech Republic a later developments

The events and circumstance mentioned

in the introduction led consequently to three banking crises In the first two of them - related to small banks - the CNB was heavily involved, particularly as the

lender of last resort The third crisis was

related to three of the four largest banks

Its solution was primarily financed from

the state budget, specifically through

the Consolidation Bank (that was later

transformed into the Czech Consolidation

Agency in 2001) and through the National

Property Fund

3.1 Banking crisis in 1996

The problem of non-performing loans

started to unfold also with new credits

provided by commercial banks once a

two-tier banking system was established,

i.e., following the banking system reform

At several banks, bad debts resulted from

frauds made by management,

sharehold-ers, but also employees Solutions were

first initiated by the CNB, as the loans

were provided more or less on the basis of

independent decision making of banks as

entrepreneurial entities Classified loans

(overdue for 31 or more days) represented

around 30% of total loans in the 1996 -

2000 period In these years, the Czech

banking system went through three

con-secutive crises

The approach to solving the first crisis

in 1996 was linked to the Consolidation

Programme II, covering fifteen small

local banks “In exchange“ for loans to

the banks, the central bank required an

increase in the capital adequacy from 8%

to 10%, primarily by existing

sharehold-ers strengthening the capital base The

program eventually led to the closures of

nine banks They were either sold to other

investors or their banking licenses were

revoked

This approach established the unfortunate

precedent whereby depositors got back

100% of their deposits with regards to the banks to be closed, up to CZK 4 million (approx USD 150 000) per depositor, regardless of the legislative rules (signifi-cantly lower limits, reimbursement of 80%

or 90%) The same non-systemic approach was used - with one exception - for all other banks; see details by (Revenda, 2013)

3.2 Banking crisis in 1997

The second banking crisis was sorted out

by the Stabilization Programme, again

targeted at small banks This time, the State was already significantly involved The banks were allowed - only if in compliance with strong CNB supervision

- to sell temporarily, for 5 to 7 years, their bad assets to the specialized Czech Financial (Česká finanční) institution By these sales, the banks obtained reserves and treasury bills with zero weight of risk, resulting in a significant increase in their capital adequacy and liquidity During

a pre-set time period the banks were supposed to get liquidity for the buybacks Six banks entered the programme Three banks ended up later with their banking licenses withdrawn, one bank was taken over, and the remaining two banks were sold to new owners The programme was terminated in June 2000 by the sale of the Czech Financial to the Consolidation Bank

3.3 Banking crisis 1998-2000

The problem of new bad loans gradually escalated at three of the four largest banks The state saved two State-owned banks -Czech Savings Bank (Česká spořitelna) and Commercial Bank (Komerční banka)

- particularly by capital increases and bad

assets purchases The recovery of these

banks was later reflected in a higher sale

price when privatized to foreign investors

(Erste Bank and Société Générale)

Investment and Post Bank (IPB, Investiční

a Poštovní banka), clearly a too-big-to-fail

institution in local terms, was a

spectacu-lar example The Czech National Bank

issued a guarantee for all deposits at the

bank at the time of forced administration

on 16 June 2000 Three days later, the

bank was sold to the Czechoslovak

Com-mercial Bank (Československá obchodní

banka) The Czech state later issued a

guarantee to the Czech National Bank to

cover some of the losses that the central

bank incurred due to obligations related to

reimbursements towards the Czechoslovak

Commercial Bank taking over IPB The

method of settlement resulted in

interna-tional arbitrations between the State and

the main shareholder of the bank (Nomura

International) running until 2016

The estimated net costs - deducting

vari-ous proceeds, including those from bank

privatization - of the assistance to the

Czech banking system between 1990 and

2007, i.e., until the Czech Consolidation

Agency was closed, ranged between 10% and 15% of GDP in 2007.3

3.4 Post-crisis period - banks in the new millennium

After 2000, banking licenses were withdrawn from two smaller banks (2002 and 2003) to whom neither the central bank nor the state gave any assistance

In the last case so far, the license was removed from ERB Bank in 2016 As the main reasons, the central bank noted: “a non-functioning governance system and purchases of bonds in contravention of legal rules“.4

The world crisis, post 2007, did not have

a significant impact on the Czech banking system The CNB provided favourable

3 https://www.cnb.cz/en/public/media_service/press_ releases_cnb/2016/20161024_erb_bank_licence.html

4 From time to time, there were “proposals“ to revalue gold reserves to their market levels and transfer the resulting “extraordinary profit“ to the state budget Maximum value of these “hidden gold reserves“ is currently CZK 7,9 billion (EUR 305 million), or 0.56% of the budget income in 2018 This would not be the first case in recent history – in 1997 and 1998, Deutsche Bundesbank was forced by the German government

to such a revaluation This way, Germany managed to fulfil the Maastricht criterion of the share of the state budget deficit to GDP.

Chart 1 Number of banks in the Czech Republic 1993-2019

Source: https://www.cnb.cz/cnb/STAT.ARADY_PKG.PARAMETRY_SESTAVY?p_sestuid=33049&p_

strid=BAA&p_lang=EN

terms of credits to banks to replenish

their liquidity Despite that, loans were

only drawn in minimum amounts and did

not exceed 0.75% of the central bank’s

assets Since February 2012 - except for

negligible amounts - these loans are no

longer demanded by the banks The high

bank reserves at the central bank are the

main reason for such a lack of demand

As a whole, the Czech banking system

is undoubtedly highly liquid This is

mainly driven by the very cautious credit

activities of the banks, negligible exposure

to financial derivatives, prudential

supervision and the monetary policy of the

Czech National Bank

The same holds for solvency The average

capital adequacy ratio is above 17%,

while the largest banks maintain 18%,

thus complying with the tougher rules

(countercyclical capital buffer etc.) that

increase the minimum level to the required

15% The number of banks is shown in the

chart 1

4 Monetary policy framework in the

Czech Republic

Since the banking reform in January 1990,

the central State Bank of Czechoslovakia

(SBCS) ceased to act as a “commercial

bank” At that time, the central bank

transferred assets and liabilities of the

commercial entities into specialized

state-owned banks Internal and external

monetary stability became the main

objectives of monetary policy, i.e., the

efforts to keep inflation under control and

to maintain a stable domestic currency

The CNB very quickly abandoned its

direct instruments, and began to use

market instruments, such as open market

operations and interest rates

Anti-inflationary policy was highly successful, and, after the sharp one-off jump in the consumer price index

in 1991 (CPI, 56.6%), the annual rate

of inflation decreased significantly

The older loans to the corporate sector that were not “absorbed“ by inflation represented the other, unfavourable, side of the policy In 1990, the currency was hit by three devaluations, and managed exchange rate served for the next seven years - i.e., including also

5 years in the newly established Czech Republic - as a “nominal anchor“

against inflation Furthermore, internal currency convertibility was introduced

In September 1990, the country’s membership in the International Monetary Fund and the World Bank Group was renewed

The split of Czechoslovakia led to the immediate separation of Czech and Slovak crowns held on accounts and used in non-cash payments In February 1993, the currency separation was carried out

4.1 Monetarist transmission mechanism

Until 1997, the CNB carried out its

mon-etary policy using a modified monetarist

transmission mechanism, where monetary

aggregate M2 (money supply in the CR)

served as a target Monetary base com-ponents were used as operational criteria

- undrawn bank reserves, excess bank reserves since mid-1994, and short-term PRIBOR (the Prague Inter-bank Offered Rate) since 1996 Inflation and exchange rate stability remained the central bank’s objectives

The exchange rate was limited to a range

of ±0.5% from the central parity,

there-fore, foreign exchange interventions

played a significant role In October 1995,

the Czech crown became externally

con-vertible, still with a limited exchange rate

Gradually, the Czech currency came under

growing pressure for appreciation Given

the two monetary policy objectives, it was

necessary to address the dilemma of the

preference of one of them In February

1996, the central bank extended the

fluc-tuation band to ±7.5 % This increased the

exchange rate risks and caused a decline

of foreign investment incentives driven

by the highly positive interest rate

differ-ential, i.e., by the difference between the

nominal interest rates locally and abroad

Due to the growing trade balance deficits,

the Czech crown was exposed to a

“clas-sic” speculative currency attack in 1997,

openly striking on 13 May The exchange

rate of the Czech crown gradually reached

the limits of the devaluation band The

CNB began to intervene massively,

indi-rectly through substantial increases in the

discount, Lombard and repo rates, as well

as directly by purchases of Czech crowns

with foreign currency 1W repo rate

(mini-mum - for purchases of securities) was

the highest in the 23 May through 2 June

period at 75% p.a High interest rates

subsequently complicated the situation to

the debtors (increase in interest payments)

and, in consequence, also to the banks

Despite all the efforts, the central bank

was forced to give up, specifically due to

the substantial decline in foreign currency

reserves On 27 May 1997, the exchange

rate corridor and the central parity were

abolished, and the floating exchange rate

was introduced

4.2 Inflation targeting

The floating exchange rate allowed the CNB to focus on inflation as the sole objective of its monetary policy This later enabled the bank to change the transmis-sion mechanism fundamentally The CNB switched to inflation targeting at the end

of 1997 Short-term PRIBOR remained the operational criterion, the intermedi-ary target was abandoned - money sup-ply became one of the criteria and the inflation target was quantified The target was initially quantified as so called clean inflation, i.e., CPI adjusted for impacts of changes in regulated prices However, the indicator was not sufficiently transparent

to the public

An effective monetary policy is condi-tional on the independence, transpar-ency, credibility and accountability of the central bank Independence is ensured by

an amendment to the 2001 Constitution Credibility and accountability are con-stantly “scrutinized” by the market and the wider public Transparency requires a comprehensible goal - since January 2002,

it is the CPI The specific values of annual CPI are also set by the central bank The last target was quantified in January 2010

as an annual CPI of 2% ± 1 pp The repo rate is the operational criterion

4.3 Quantitative easing

A special way of implementing monetary policy, quantitative easing, is known since

2000 from Japan (Spiegel, 2001), and

e.g (Besley and Kohn, 2009; Lenza et

al., 2010; Thornton, 2011; Bullard, 2012;

Reis, 2013; Williamson, 2015) In the last financial crisis, for example, the European Central Bank (ECB) and the US Fed took

this approach - the main reason, however,

was to increase the liquidity of the

bank-ing, or rather financial, system The CNB

began to use QE in October 2008, initially

with the same goal - securing liquidity of

the banks

QE has two basic forms - central bank

in-terest rate cuts, and purchases of securities

by the central bank from banks (reverse

repos, i.e., liquidity-providing repos) The

CNB sets three basic rates:

- Discount rate charged on excess reserves

at predetermined multiples (CZK 100

mil-lion);

- Repo rate - the maximum rate offered to

banks when selling central bank bills

(in-terest rate repo tenders,

liquidity–accept-ing repos, three times a week) - mostly

two-week (2W) rates;

- Lombard rate for overnight loans to

banks

Table 1 shows interest rate changes since

their highest level in February 2008 Until

December 2009, the CNB announced only

the repo rate Discount rate was automati-cally 1 pp lower and the Lombard rate 1

pp higher A decrease of the repo rate to 1

% would result in the discount rate of 0% The CNB started to announce the discount rate at the same time, and from October

2012 also the Lombard rate

In November 2012, the CNB introduced

“technical zero” rates (0.05 %) for both the repo rate and the discount rate Un-like the ECB, for example, the CNB did not use negative interest rates (the reasons were rather in the tax system and in the

“psychology of the Czech households”) Since 2012, interest rate cuts were linked mainly to efforts to stop deflationary tendencies that were associated with both the previous economic recession and the appreciation of the Czech crown The reason for ensuring liquidity in the bank-ing system gradually came to an end, as banks had already sufficiently high excess reserves

Table 1 The CNB’s interest rates (%)

Repo rate

Discount rate Lombardrate Changes Repo 2W

rate

Discount rate Lombardrate February 8, 2008 3.75 2.75 4.75 October 1, 2012 0.25 0.10 0.75 August 8, 2008 3.50 2.50 4.50 November 2, 2012 0.05 0.05 0.25 November 7, 2008 2.75 1.75 3.75 August 4, 2017 0.25 0.05 0.50 December 18, 2008 2.25 1.25 3.25 November 3, 2017 0.50 0.05 1.00 February 6, 2009 1.75 0.75 2.75 February 2, 2018 0.75 0.05 1.50

August 7, 2009 1.25 0.25 2.25 August 3, 2018 1.25 0.25 2.25 December 17, 2009 1.00 0.25 2.00 September 27, 2018 1,50 0,50 2,50 May 7, 2010 0.75 0.25 1.75 November 2, 2018 1,75 0,75 2,75

Source: https://www.cnb.cz/en/monetary-policy/instruments

The same fact led to the “spontaneous

extinction” of the second form of QE -

reverse repos Insignificant amounts of

liquidity-providing repos (with minimum

repo rate) ran since October 2008 to

January 2012 - high bank reserves de facto

eliminated efficiency of this form of QE

4.3.1 Riddle of repos

Looking at the same discount and repo

rate levels in detail (Table 1, November

2012 - August 2017), an economist may

ask: Why the banks spent their excess

reserves buying the CNB bills, when their

return could reach the announced repo

rate at the maximum, i.e., the level of the

discount rate? Is not it better not to buy

anything when the reserves potentially

bear (just slightly) lower interest rate?

The explanation lies (above all) in the

interest rates applied on the multiples of

excess reserves For example, if the bank

has reserves of CZK 350 million, only the

amount of CZK 300 million is

interest-bearing - the remaining CZK 50 million

are interest-free, unless the bank buys the

CNB bills

With a “return to normal“ in terms of the

higher repo rate compared to the discount

rate, banks’ interest in the CNB bills is

obvious Then, one could ask: Why the

banks do not use “almost all” of their

ex-cess reserves for the purchases of the CNB

bills? The answer is clear - these securities

are not offered in such amounts Further,

purchases of the CNB bills are limited, of

course, by the use of excess reserves for

interbank payments

Potential uncertainties are also associated

with the repo rate as an instrument and

the operational criterion - the short-term

interest rate - in the inflation targeting

process The announced (maximum) repo

rate is an instrument, while the role of the operational criterion is fulfilled by

the actually achieved (and typically just

slightly lower) repo rate More frequently

- in countries with inflation targeting - the interbank offered rate is used as the operational criterion

4.3.2 Foreign exchange interventions

Almost zero interest rates and the high excess reserves exposed the CNB to a fundamental problem - how to further deal with the deflationary pressure In the end, the central bank started to use a “special form” of QE - interventions against the Czech crown

The Czech Republic is a highly open economy, with the share of foreign trade

on GDP of 160% Therefore, exchange rate movements have - through import prices - a potentially high impact on domestic price levels In October 2012, the CNB started strong verbal interventions The situation repeated itself after each monetary session of the Central Bank Board However, the impacts on the Czech crown gradually diminished - “the longer you talk and do nothing, the less attention

is paid“

It was then necessary to start “real“ for-eign exchange interventions (FXI) The first one took place on 7 November 2013

in the amount of CZK 200 billion (approx EUR 7.5 billion; the CNB purchased also other currencies during the interventions, e.g., USD ) Most analysts were very surprised The author modestly notes that

“he was surprised by the surprise of the analysts“ as the CNB already intervened