* Government resigns after a year in power
* Resignation paves way for snap election in October
* Jubilant crowds gather in front of parliament building
* Bank crisis will push up fiscal deficit: analyst
(Adds quotes, details, background)
By Tsvetelia Tsolova and Angel Krasimirov
SOFIA, July 23 Bulgaria's Prime Minister Plamen
Oresharski stood down on Wednesday, leaving his successor to
sort out the Balkan state's worst banking crisis since the 1990s
with the fate of its fourth largest lender undecided.
Oresharski, in power for just over a year, had flagged his
departure after the ruling Socialists' poor showing in May's
European Parliament elections. His resignation paves the way for
an interim government to take over in August and a general
election in October.
The vote marks the second snap election in less than two
years in the European Union's poorest member state. The
prolonged instability has hampered efforts to make the economy
more efficient and prompted a credit rating downgrade in June.
The Socialist-led coalition increased the minimum wage,
worked to cut red tape for businesses and found investors for a
1.5 billion euro ($2 billion) sovereign bond last month despite
the banking crisis.
But Oresharski's tenure was overshadowed by months of street
protests against corruption, deadly floods that hit the Black
Sea city of Varna in June and a standoff between Brussels and
Moscow over a Russian-led gas pipeline project.
The Socialists ruled with the ethnic Turkish MRF party in a
minority coalition, which relied on the outside support of the
nationalist Attack party to cling to power and survive repeated
no confidence votes while in office.
Hundreds gathered in the Bulgarian capital as news of the
resignation broke, chanting "victory", as two lines of police
looked on in front of the parliament building. Wednesday also
marked the first anniversary of an eight-hour siege of
parliament by protesters demanding the government's resignation.
But opposition GERB leader Boiko Borisov wrote on his
Facebook wall: "Such a belated resignation, and knowing what
ruin they leave behind, I could not even enjoy it."
Earlier, protesters threw tomatoes at a government building,
according to local media reports.
The government stands down with no consensus in sight about
how to rescue Corporate Commercial Bank (Corpbank)
and protect its depositors after a run on the bank in June.
The central bank governor on Tuesday wrote to parliament
offering to step down, saying he would not let the bank be used
as a political "toy" after repeated attacks on the institution.
Depositors unnerved by reports of shady deals by Corpbank's
main owner withdrew more than a fifth of deposits in a week-long
bank run. The owner, who was locked in a public feud with a
business rival at the time, has denied any wrongdoing and said
the run was a plot hatched by his competitors.
The run prompted the central bank to seize control of
Corpbank for three months, block depositors from taking out
their money and commission an audit. Panic spread to another
lender, forcing the Bulgarian government to free up an emergency
credit line for its banking system.
"Although the authorities successfully intervened to prevent
contagion, the price of the containment effort will be higher
deficit and debt levels," Tsveta Petrova, an analyst at the
Eurasia Group, said in a note on Wednesday.
Sofia has estimated the state rescue cost at about 1.5-2
billion levs ($1.4 billion). Bulgarian authorities have pursued
various options for rescuing Corpbank, including hiving off its
healthy assets and liabilities into a subsidiary, which would
then open as a nationalised bank under a new name.
But lawmakers rejected that rescue package, making a
resolution unlikely before parliament dissolves in August.
Parliament will now vote on whether to accept Oresharski's
resignation, likely on Thursday or Friday. The GERB party, which
governed Bulgaria until it was toppled by street protests in
February 2013, looks set to win the October polls.
But it might fall short of a majority, prolonging the
instability that prompted Standard & Poor's to downgrade
Bulgaria's sovereign debt rating to one notch above junk.
GERB has put forward its own proposals for solving the bank
crisis, including purging the central bank's leadership and
guaranteeing deposits of up to 100,000 euros at Corpbank - short
of the government's pledge to guarantee deposits in full.
There is no clear indication of what will happen to holders
of Corpbank's dollar denominated bond, due to mature on Aug. 8.
The new government will have also to deal with the rising
debt of public electricity provider NEK, after the outgoing
government cut electricity prices twice last year and increased
them only marginally in July.
"We are leaving the country with a stable fiscal reserve,
which exceeds 8 billion levs ($5.5 billion), despite baseless
talk of bankruptcy," outgoing Finance Minister Petar Chobanov
told reporters in Sofia. "It gives room for flexibility."
Under its currency board which pegs the lev currency to the
euro, Bulgaria is obliged to maintain a fiscal reserve.
($1 = 0.7425 Euros)
(Writing by Matthias Williams; Editing by Jeremy Gaunt/Ruth