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By Tsvetelia Tsolova
SOFIA, July 14 Bulgaria will seek European
supervision for its banks, President Rosen Plevneliev said on
Monday after the country's fourth biggest lender was caught up
in a financial scandal.
Bulgaria would be the first country outside the 18-nation
euro zone to join the European Single Supervisory Mechanism, set
up in response to the global financial and euro zone debt
Plevneliev said Bulgaria's central bank would also submit
itself to a peer review from the European Banking Authority.
This is the first time that Bulgaria has signalled its
intention to join the European supervision scheme. A banking
crisis sparked runs on two lenders in June.
Bulgaria's central bank announced on Friday it would let
Corporate Commercial Bank (Corpbank) collapse but make
sure that customers do not lose out in the wake of Bulgaria's
worst financial scandal since a domestic banking crisis in
A run on Corpbank last month was prompted by media reports
accusing top shareholder Tsvetan Vassilev of shady business
deals. It spread quickly to another lender, forcing Sofia to set
up a protective $2.3 billion credit line for its banks - a
reminder that parts of Europe's financial system are still far
from secure. Vassilev has denied the allegations against him.
"The big news from today's consultations - it is positive
for all of us," Plevneliev said in a televised statement.
Even though Corpbank is being allowed to collapse, it will
need a state-funded bailout to protect the lender's depositors.
"We have a full consensus to immediately start the procedure
for Bulgaria's entry into the Single Supervisory Mechanism of
the European Union. This is the first step of Bulgaria's
accession to the EU's banking union," the president said.
The European Central Bank (ECB) is responsible for the
single supervisory mechanism and will take up these powers on
Nov. 4. The ECB was not immediately available for comment.
Other EU countries were always encouraged to join the single
supervisory regime, but were reluctant because its board will be
subservient to that of the ECB, which can only draw
representatives from the euro zone.
The single supervisor is carrying out the asset quality
review that will determine if 128 of the euro zone's largest
banks need more capital, and will also be responsible for the
direct supervision of those banks as well as the indirect
supervision of about 3,400 more. This supervision will include
regular tests of whether the banks have enough capital.
Plevneliev said Bulgaria's politicians parties had also
agreed to allow the government to widen the fiscal deficit,
possibly by up to 3 percent of gross domestic product against a
planned target for 2014 of 1.8 percent.
Bulgarian officials had initially said that depositors would
not lose any money following the run on Corpbank. However, the
president said on Monday that the state had the means to protect
depositors of up to 100,000 euros ($136,000), making it unclear
whether they would receive the full amount.
He said the political parties failed to agree on the
proposed plan to restructure Corpbank and that the central bank
will have to come up with concrete datelines and details in the
($1 = 0.7331 Euros)
(Additional reporting by Laura Noonan in London; Writing by
Matthias Williams; Editing by Ruth Pitchford)