Bulgaria’s government approved on June 3 a bill implementing the provisions of EU’s the bank recovery and resolution directive, a week after the European Commission said it was stepping up infringement proceedings against Sofia for failure to do so on time.
The directive went into force in June 2014, with national governments given until the end of last year to pass new laws that adopted the provisions of the directive. In Bulgaria’s case, the timeframe covered the last months of a hobbled ruling axis in the National Assembly that routinely struggled to get the necessary quorum to hold sittings and then a period of three months with no Parliament, as the legislature was disbanded to pave way for snap elections.
Last week, in announcing that it was pursuing infringement proceedings against 11 member states, Bulgaria among them, the Commission described the directive as the “centrepiece of the EU’s Banking Union that was put in place to create a safer and sounder financial sector in the wake of the financial crisis”, which provided national authorities with “the necessary tools and powers to mitigate and manage the distress or failure of banks or large investment firms.”
Drafted in the aftermath of the 2008 financial crisis, the main objective of the directive was to ensure that banks on the verge of insolvency can be restructured without taxpayers having to pay for failing banks to safeguard financial stability; providing instead for shareholders and creditors of the banks to pay their share of the costs through a “bail-in” mechanism, the Commission said.
The issue is particularly topical in Bulgaria’s case, where the country’s fourth-largest lender by assets, the Corporate Commercial Bank, asked to be put under central bank administration in June 2014 and later was found to hold mainly impaired assets. Following a write-down, its banking licence withdrawn in November 2014, but its majority shareholder has repeatedly claimed that he was never given a chance to present a restructuring plan.
(Bulgaria’s Council of Ministers building. Photo: Clive Leviev-Sawyer)