SOFIA (Bulgaria), May 28 (SeeNews) – The European Commission said on Thursday it has requested Bulgaria, Romania, and nine other member states to fully implement the Bank Recovery and Resolution Directive (BRRD) for a safer and sounder financial sector in the wake of the financial crisis.
"The new BRRD rules equip national authorities with the necessary tools and powers to mitigate and manage the distress or failure of banks or large investment firms in all EU Member States," the Commission said in a press release.
Its aim is to ensure that banks on the verge of insolvency can be restructured without taxpayers having to pay for failing banks to safeguard financial stability.
"Instead, they provide for shareholders and creditors of the banks to pay their share of the costs through a "bail-in" mechanism," the Commission also said.
The deadline for the transposition of these rules into national law was December 31 but 11 member states have failed to implement these rules into their national law.
The Commission said its request takes the form of a reasoned opinion, the second stage of the EU infringement procedures and if these countries fail to comply within two months, it may decide to refer them to the EU Court of Justice.
In June 2014, Bulgaria's central bank placed Corporate Commercial Bank (Corpbank) under special supervision over risk of insolvency after it was notified that the lender had run out of liquidity and had suspended payments and all types of banking operations. A few days later, the central bank said there was an organised attack being perpetrated through rumours and malicious statements against local banks, First Investment Bank (Fibank) in particular, to jeopardize the stability of the country's banking system. Fibank paid out a significant amount to depositors before closing temporarily in the early afternoon of June 27 to replenish the liquidity in the branches and ATMs.
Later that month the European Commission said it had approved Bulgaria’s request that the country extend a 3.3 billion lev ($1.8 billion/1.7 billion euro) credit line in support of its banking system following speculative attacks. Local media reported at the time that Fibank, which ranked as the nation's third largest bank at the end of July, received the full amount of the funding envisaged under the liquidity support scheme.
In November, the central bank revoked Corpbank's licence as the lender was found to have a negative own capital of 3.75 billion levs as of September 30. Guaranteed deposits at Corpbank totalled 3.7 billion levs. In December, the Bulgarian government decided to lend up to 2.0 billion levs in budget funds to the country's Deposit Insurance Fund to be used to finance the shortage in funds that it was facing for the repayment of guaranteed deposits held by Corpbank.
In April 2015 the Sofia City Court declared Corpbank insolvent.
(1 euro=1.95583 Bulgarian levs)