The proposed administrative cap on bank profitability is not merely a correction of excess profits but an attack on the capital that underpins credit, investments, and the security of deposits. While the state may attempt to treat banks like public utilities, treating their profits as a fiscal bounty, the consequences of such an experiment will be felt not on bank balance sheets but by entrepreneurs, customers, and the broader economy.
During a recent interview on the Polsat program “Guest of Events,” Prime Minister Mateusz Morawiecki introduced the idea of an administrative cap on profitability for the banking sector, a concept that seems to align with a narrative developed by former Prime Minister Morawiecki and his allies over recent months, raising serious concerns.
Exotic Taxation for Banks
This proposal boils down to an administrative limitation of bank returns on equity to a level of 10 percent. This idea goes far beyond a standard windfall tax. Since the global financial crisis, the average return on equity (ROE) in the Polish banking sector from 2009 to 2025 has been 8.8 percent, with this figure exceeding 10 percent only five times in nearly two decades, specifically during periods of rising interest rates due to inflationary pressures. The implication is clear: inflation must be controlled through disciplined fiscal and monetary policies, not through solutions reminiscent of Poland’s communist era.
The proposal presented in the interview is not a one-time payment. Although it is framed as a windfall tax meant to address budget deficits or fund defense spending, it effectively means that any profit exceeding 10 percent of the bank’s capital would be confiscated as a corrective tax.
The Polish banking sector is already subject to rather “exotic” asset taxation that penalizes asset growth and has no other imitators, except in Hungary, albeit in a milder form. Introduced in 2016, the current proposals seem to fit within a narrative of an abstract and volitional sense of justice claimed by their proponents.
Lessons from Europe
Similar, albeit milder attempts at intervention in Europe have quickly verified the intentions of lawmakers, forcing governments to revise their plans. In the summer of 2023, when the Italian government unexpectedly announced a windfall tax on bank profits, the resulting stock market plunge and strong response from financial markets necessitated a swift modification of the proposal, exempting banks from this tax if the generated funds were allocated to strengthening their capital bases.
Italian regulators quickly grasped what Prime Minister Morawiecki’s proposal denies: bank profits are not useless surpluses but are essential for the stability of the entire system and economic growth. It is also crucial to remember that, unlike many Western countries—including Italy—Polish taxpayers have never been compelled to bail out the banking sector en masse, a fact attributable to a conservative approach to risk management, a strong emphasis on equity capital, and prudent oversight.
This backdrop makes it all the more perplexing that there is a narrative treating bank capital buffers as excessive fiscal plunder rather than as a prerequisite for the safety of the entire system. Even Hungary’s previously interventionist government, known for implementing various sector-specific taxes, never dared to impose permanent administrative limits on ROE, recognizing that this would suffocate the credit financing market.
Undermining Market Economy Foundations
Implementing a top-down profitability cap would fundamentally destroy the essential relationship between risk and expected investment returns in a market economy. The cost of equity is not a fixed value set by bureaucrats; rather, it is a dynamic market measure of the risk owners undertake in response to alternative investment opportunities in which they allocate their funds to a selected institution. Imposing a rigid profitability limit would arbitrarily suspend the operation of this pricing mechanism, leaving the banking sector permanently exposed to the risk of destroying economic value, regardless of the scale of risk incurred. No rational investor would allocate capital to an industry where the state preemptively curbs growth potential while imposing full responsibility for losses.
The expected consequence would be a steady outflow of capital, a correction of stock valuations, and particularly a diminished market capacity to attract new funds for development.
Politics versus Economics
The proposal to impose a maximum ROE of 10 percent for banks may appear politically attractive, but from an economic standpoint, it calls into question one of the most fundamental principles of finance—the principle stating that capital must yield a return at least equal to its acquisition cost.
This perspective is not merely a banking sector opinion; it is a cornerstone of the academic contributions of some of the world’s most distinguished economists. Nobel Prize winners like Franco Modigliani, Merton Miller, William Sharpe, Robert Merton, and Eugene Fama dedicated decades of research to elucidating the relationships between risk, capital cost, and investors’ expected returns. Modern financial theory leaves no room for doubt: investors engage capital only when the expected return compensates for the risk taken.
Professor Aswath Damodaran, one of the most respected contemporary experts on business valuation, argues that value creation occurs solely when the return on capital exceeds the cost of that capital. If a business yields a return lower than its capital cost, it is essentially destroying economic value.
This issue is particularly critical for banks, which do not fund the economy from current profits but from their own capital. It is this equity capital that defines the sector’s ability to extend credit and finance infrastructure, energy, defense, or housing investments. Any limitation on profitability will over time translate into slower capital growth and reduced potential for financing the economy.
Economics has taught us for decades that while prices can be regulated administratively, the laws of capital supply cannot be arbitrarily abolished. If capital does not have the opportunity to earn an adequate return commensurate with the risk, it will simply flow to areas where such compensation is available. This pertains to all industries, including banking.
The cost of equity is not a constant but a market price of risk that fluctuates with the macroeconomic environment, interest rate levels, country risk premiums, and perceived regulatory stability in the sector.
In the first quarter of 2026, the eight largest banks in Poland paid a total of 7.2 billion PLN due to contributions to the Bank Guarantee Fund, asset taxes, and corporate income tax, against a net profit of 7.6 billion PLN. This indicates that the effective taxation from asset taxes and corporate income tax reached 44 percent, and after accounting for the Bank Guarantee Fund contributions, it climbed to 49 percent.
In essence, the state and the guarantee system extracted nearly the equivalent of what remained in the sector as net profit. Given these circumstances, imposing additional taxation on so-called “excessive” profitability would not be a correction of a supposed privilege but a further blow to the capital that funds credit, ensures deposit security, and reinforces the resilience of the entire economy.
In this context, introducing a rigid profitability cap under the populist pretext that banks in Poland are thriving would ultimately deprive financial institutions of operational flexibility and hinder their ability to build resilience against macroeconomic shocks.
Consequences of Profit Confiscation
This type of regulation would also undermine the technological efficiency and modernization of the national financial sector, which has significantly enhanced its operational efficiency over recent decades. Polish institutions have established a solid position regarding digitization, transaction processing, and the prevalence of mobile payments. This development was not the result of decrees but largely the outcome of market competition and fruitful collaboration among banks in creating a common infrastructure which the prime minister has engaged in during his banking role.
Banks have invested substantial resources in IT infrastructure to reduce their own costs and facilitate customer access to services. They have incurred enormous costs in supporting the state in fulfilling public administration tasks, particularly in digitization, by making their resources available, including technological capabilities.
The existence of a rigid return on equity limit could seriously weaken these natural modernization incentives. I vividly remember the consequences of such measures in the context of the previous economic regime and cannot see how we could effectively counteract such phenomena. When profit above a certain level is confiscated, rational strategy begins to shift towards artificially inflating costs and reducing profitability below the punitive threshold, instead of advancing service standards or implementing new solutions.
Not Just Banks Will Pay
Critically, the state already significantly controls what can happen to the profits generated by banks. Dividend payouts require the approval of the Polish Financial Supervision Authority (KNF), and for many years a significant portion of profits has remained within the sector as capital supporting lending activities.
In banking, profit is not merely a shareholder return; it serves primarily as the foundation of capital, which determines concentration limits, the scale of financing, and the sector’s ability to support the economy—75 percent of net profit generated since 2010 remains in the banking sector as capital.
It is essential to recognize that the ownership of the largest Polish banks is not an abstract category of “big capital.” A significant portion of their stability is backed by domestic institutional investors, including Polish retirement savings.
A blow to sector profitability would thus weaken the creditworthiness of banks and reduce the value of assets, which indirectly affects Polish savers and future retirees—e.g., in the case of the largest bank, PKO BP, clients of pension funds and mutual funds hold over 29 percent of shares (approximately the same as the state’s stake), Pekao has 24 percent, and Alior has 42 percent.
Limiting bank profitability would impact not only the financial sector and its shareholders but also directly affect the state’s fiscal interests. Lower ROE translates into lower profits, resulting in reduced corporate income tax (CIT) revenues and a diminished base for dividend distribution, including those owed to the state as a shareholder in the largest institutions.
Between 2023 and 2025, banks contributed approximately 74 billion PLN to the state budget: 41.4 billion PLN from CIT, 17.7 billion PLN from the banking tax, 10.6 billion PLN from dividends due to the State Treasury, and about 4.4 billion PLN from personal income tax (PIT) paid by bank sector employees.
This scale indicates that banks are currently one of the most significant contributors to public finances. This amount corresponds to nearly 79 percent of government expenditure on science and higher education between 2023 and 2025 and about 14 percent of defense spending during the same period. A permanent reduction in sector profitability would also weaken one of the funding sources for the government’s priority tasks.
A Stagnant Economy
The most severe repercussions would, however, be felt by the entire Polish economy. We face enormous modernization challenges: the energy transformation, which, according to estimates from the Polish Banking Association, will cost around 1.6 trillion PLN, infrastructure investments by 2040 amounting to hundreds of billions and potentially trillions, bridge financing, and joint participation in EU projects.
Banks account for a significant portion of economic funding, and due to the shallow capital market, there are no alternative funding sources outside the banking sector in Poland—banks provide approximately 80 percent of external financing needs for businesses. To safely develop their lending activities, they need to continually increase their own funds. With the inflow of capital from the market blocked, the only path is the organic accumulation of profits.
Presenting profits generated by the sector as money lying on the street demonstrates a fundamental misunderstanding of this relationship. Any form of top-down profitability restriction drastically reduces growth opportunities and leads to a credit crunch—structurally severing businesses from financing. Even now, the ratio of loans to the Polish non-financial sector to GDP is among the lowest in the European Union, and the credit gap, estimated by the Bank for International Settlements at around 700 billion PLN, indicates a significant shortage of credit compared to the economy’s potential.
Weak Banks Can’t Finance Development
Europe will not regain competitiveness or finance its transformation with weak banks. Mario Draghi’s report and the accompanying debate about banking union clearly indicate that we need financial institutions that are larger, stronger, and more capable of mobilizing capital—not a sector permanently weakened by fiscal and regulatory constraints. If Europe is to finance energy, digital, and defense transformations, it requires stronger, not weaker, banks.
It is also worth noting that the Polish banking sector today functions as something beyond mere financial intermediation. Banks are a significant part of the country’s critical digital infrastructure: they ensure continuity of payments, secure identity verification for citizens, and access to essential public services online.
During the pandemic, this function was particularly evident when the banking sector became the main channel for efficiently distributing public assistance to businesses. Through solutions like myID linked to the Trusted Profile, banks also facilitate administrative tasks on portals such as Gov.pl, PUE ZUS, or Pacjent.gov.pl, as well as services for entrepreneurs.
In the context of cyberattacks, energy infrastructure failures, disinformation campaigns, or hybrid threats, the banking sector must maintain costly security systems, backup environments, and continuity of operations procedures. Therefore, undermining its ability to invest in resilience and reliability impacts not only banking but also the functioning of the state and the everyday safety of citizens.
The Consequences of State Taxation
The most significant flaw and risk of the concept of limiting the level of return on capital lies in the mathematical structure of the ROE indicator, which is a ratio of net profit to equity.
If the state imposes a punitive tax above 10 percent, bank management—obligated to protect the stability of their institutions—faces a straightforward choice. To comply with the limit, banks will not artificially lower margins, as this increases the risk of insolvency in tougher times, but will begin to shrink their balance sheets.
Instead of expanding lending, which requires engaging additional, expensive capital, banks will start to restrict new credit approvals. The smaller the scale of operations and lower the capital base, the easier it is to maintain ROE at a safe, penalty-free level. For the real economy, this means a relatively sudden and profound credit crunch—structurally severing businesses from debt financing.
Credit Drought
Moreover, Poland does not currently face an excess of credit but rather a structural shortage. Credit to the economy has fallen from about 50 percent of GDP a decade ago to only 32 percent now, placing us among the least banked economies in Europe.
We are the sixth-largest economy in the EU, yet we possess one of the smallest banking sectors relative to GDP—specifically, the third smallest.
In these conditions, any attempt to administratively suppress bank profitability represents not a strike against “extraordinary profits” but against Poland’s ability to finance investments, modernization, and long-term growth. A long-term consequence of weakening the domestic banking sector could also be a reduction in the financial sovereignty of the state.
If domestic institutions are unable to accumulate capital and develop their balance sheets, an increasing share of economic financing will depend on the decisions of central foreign banking groups. A country that wishes to undertake significant development projects, support the expansion of its own firms, and contribute to financing the reconstruction of Ukraine should not consciously undermine its own banking infrastructure.
The paradox is that the regulatory and fiscal incentives currently in place have already shifted banks’ balance sheets away from funding the real economy towards financing the state. The share of government bonds in sector assets stands at about 25 percent, and including NBP cash bills and other debt instruments, it exceeds 33 percent—already surpassing the share of loans. This is an outstanding anomaly in European terms. Further weakening the profitability of lending will not be a “punishment for banks” but a fresh impulse for restricting credit and further detaching the financial sector from the investment needs of the Polish economy.
This proposal also entirely disregards the profound asymmetry of risk inherent in the economic cycle. The performance of banks is inherently volatile and closely tied to interest rate levels and the phase of the economic cycle. Banks do not operate on a one-year horizon; they function over the long term, often considering the assets on their balance sheets over twenty or thirty years. In this extended timeframe, variability manifests: years of high economic activity and record profits are interspersed with periods of downturns and recessions.
This is precisely why banks must build capital buffers during periods of favorable economic conditions—accumulating surpluses that allow them not to drastically curtail lending in “lean years.” This is not an extraordinary bounty, but a natural stabilizing mechanism ingrained in the essence of banking activity. From these reserves, banks cover the costs of unpaid loans during economic slowdowns or absorb unforeseen legal costs.
Europe Chooses Resilience and Stability
European regulatory trends today reward resilience, loss absorption capacity, and stable financing rather than fiscal impairments on banks’ ability to accumulate capital. In a world where even technical changes in the hierarchy of creditors can influence ratings and debt issuance costs, administratively undermining the sector’s capacity to build its equity would be an action diametrically opposed to the logic underlying the contemporary architecture of banking security in Europe.
A broader lesson from Europe is even more critical. Today’s debate about banks goes beyond mere current profit levels; it encompasses the resilience of the entire funding structure—the relationship between deposits, capital, and subordinated and senior debt. From the perspective of investors and rating agencies, it matters not only the net result for one year but the bank’s ability to maintain a secure liabilities structure and absorb losses over the long term. Thus, permanently weakening the sector’s profitability adversely impacts not only shareholders but the system’s ability to consistently fund the economy.
Regulatory conditions and the limited pool of domestic capital compel Polish banks to maintain a permanent presence in international financial markets. The scale of debt instrument issuance by banks in these markets amounts to tens of billions of PLN.
It should also be noted that if it were not for the higher interest rates in 2022 and 2023, legal risk reserves would have collapsed the banking sector, and the Polish state would have faced the prospect of a systemic banking crisis, the economic and social costs of which would be immense—such crises can cost as much as half the country’s GDP. The literature on the costs of banking crises leads to one clear conclusion: the weakening of the banking sector extends beyond its balance sheets and materializes over time in public finances and the real economy. Therefore, profits retained in banks are not surpluses for fiscal appropriation but elements of systemic resilience—conditions for loss absorption, credit continuity, and cost reduction that, otherwise, the state would incur.
The Proposal Threatens System Stability
The mechanism whereby the state confiscates profits above a rigid cap in good economic times while leaving banks to shoulder all the risk of losses in downturns is structurally unfair and jeopardizes the stability of the entire system. Had such a profitability limit been in place over the past years, banks would not have been able to build adequate safety cushions during periods of high interest rates, which are crucial from the broader economic perspective. At the first serious recession, instead of capital reserves, professional institutions would have to drastically curtail lending, exacerbating the crisis and shifting the burden onto the entire economy. In the end, this undermines the security of the savings of millions of depositors, whose funds are only protected to the extent that banks possess buffers built during prosperous times.
Of course, in times of extraordinary market disruptions, discussions about the proportional contributions of sectors to bear public burdens may be warranted. However, the attempt to permanently transform a competitive, risk-laden banking sector into an administratively regulated public utility—without removing the inherent risks in its operations—is an experiment that no developed country has dared to undertake.
The path to cheaper credit and stronger investments does not lie in choking off the profits and capital of banks through decrees but in regulatory stability, legal predictability, and wise fiscal reforms that encourage banks to channel liquidity surpluses directly into the real economy, and businesses to be more open to investing in growth.
Banking Public Debt
The Prime Minister also seems to overlook a very hard-to-manage danger currently present in bank balance sheets, which partly stems from the introduction of the banking tax during his ministry.
Exempting government securities from this (draconian) tax has gradually led to around 30 percent of these instruments in the asset structure of Polish banks. We are at the forefront of public debt banking, and domestic banks hold it in their balance sheets several times more than banks in Western Europe. While this has facilitated and continues to facilitate the Ministry of Finance’s management of public debt, it also poses significant risks for commercial institutions that, should the country’s rating deteriorate, can significantly negatively impact the regulatory capital levels of individual banks.
This risk is not evident in the short term, but it cannot be downplayed in discussions about bank profits and capital, especially considering that in 2022, following a rapid increase in interest rates, we had an unpleasant precursor of such a situation. In March 2026, due to the conflict in the Middle East and rising bond yields—averaging 0.7 percentage points—the banking sector “evaporated” nearly 8 billion PLN—an effect and risk that weighs on the banking sector due to its strong, regulation-supported engagement in financing government securities.
The Greek Lesson
The Greek lesson shows that the most dangerous banking crises do not start from a single regulatory error but from a gradual blurring of the line between the state balance sheet and the banking sector balance sheet. Before the crisis, Greek banks were primarily engaged in crediting the private sector; only after the freezing of the interbank market and the escalation of the debt crisis did they begin to shift capital more aggressively towards government securities.
This led to the classic bank-state loop: the government had to bail out the banks, the banks financed the government, and the deterioration of one immediately weakened the other. This warning is especially poignant for Poland, where the share of debt instruments in bank assets is already exceptionally high. Policies that further weaken the profitability of lending and favor the financing of public debt do not enhance systemic security—instead, they edge it closer to a model where the stability of banks becomes hostage to the fiscal stability of the state.
Currently, the asset structure of the banking sector in Poland is an anomaly on a European scale. The share of government bonds in banks’ balance sheets is unprecedented compared to other countries in Europe, amounting to nearly 25 percent, and including NBP cash bills and other debt instruments, the share of debt instruments in banks’ balance sheets exceeds 33 percent. By 2025, this share exceeded that of loans. Currently, the share of debt instruments (mainly government bonds and cash bills) reaches 39 percent compared to 37 percent of loans to the non-financial sector—an unprecedented situation in history and a unique phenomenon in European terms. The KNF and NBP assess this situation as unfavorable for the economy and risky for the stability of the sector.
If we wish to treat the banking sector as an instrument for financing Polish development, three things are necessary: first, a reduction of legal risk that currently undermines banks’ ability to long-term planning and risk absorption; second, a change in the structure of the banking tax, which in its current form penalizes lending while rewarding the financing of public debt; and third, a stable and predictable regulatory environment—one that does not confiscate capital in good times but allows the sector to build its capacity for long-term investment financing.
Policy towards the banking sector cannot be designed for short-term political or accounting effects, as the consequences manifest with a delay—often in public debt, growth rates, and credit availability. In this spirit, a clear appeal to Parliament is necessary: let us organize consumer legislation with utmost caution, in accordance with EU law and without creating further incentives for mass lawsuits, which ultimately weaken the sector’s ability to finance the economy and result in an arbitrary redistribution of social wealth, favoring borrowers and destroying the obligations that underpin a market economy.
This is not solely about bank balance sheets; it is also about trust, without which credit does not function. The public narrative that banks are inherently dishonest parties perpetuates the logic of “us versus them,” weakens the moral obligation to honor commitments, and increases social acceptance of avoiding obligations. Ultimately, the costs are borne not just by financial institutions but also by honest customers and entrepreneurs—in the form of higher risk costs, stricter scoring, reduced credit availability, and a larger grey economy.
In conclusion, I cannot help but reflect that abandoning banking practices in favor of political activity should not lead to proposals that explicitly threaten the foundations of market mechanisms and result in an obvious weakening of the banking sector in its universal functions of transmitting monetary policy, creating money, allocating capital, and transformation. I urge deeper reflection on this unconventional proposal.
Title and subheadings are from the editorial team.
Author: Cezary Stypułkowski, President of Bank Pekao and Chairman of the Polish Bank Association.
