site.btaEC Opens Infringement Proceedings against Bulgaria over Bank Customers' Lack of Immediate Access to Their Money

EC Opens Infringement Proceedings against Bulgaria over Bank Customers' Lack of Immediate Access
to Their Money


Brussels, September 25 (BTA Correspondent Nikolay Jeliazkov) -
The European Commission is opening infringement proceedings
against Bulgaria for its failure to correctly transpose Articles
1(3) and 10(1) of Directive 94/19/EC, the Deposit Guarantee
Scheme (DGS) Directive, as well as its failure to comply with
the principle of free movement of capital under Article 63 of
the Treaty on the Functioning of the European Union.

By opening these infringement proceedings, the Commission is
exercising its responsibility to monitor compliance with EU law
by Member States. The Commission expects that depositors will be
given immediate access to the amount of bank deposits to which
they are entitled.

The Bulgarian deposit guarantee scheme is currently not paying
out on claims by depositors of Corporate Commercial Bank AD
(Corpbank) and Commercial Bank Victoria EAD within the timeline
foreseen in the DGS Directive.

Corpbank suspended all operations on June 21 after a run by
depositors left it illiquid, and on the same day the Bulgarian
National Bank (BNB) placed it under conservatorship for a
maximum of six months to allow a thorough audit and possible
restructuring.

Both banks have been closed since the second half of June.
Depositors have not had access to their funds for three months.
According to a BNB decision of September 16, no decision will be
taken before end-November. Given the severe consequences for
households and companies alike, Commission services have been in
close contact with the Bulgarian authorities over the last
couple of weeks in order to assist the national authorities in
finding an adequate solution. The current situation may
undermine public trust in the deposit guarantee scheme in
Bulgaria, the Commission says.

The Commission is sending a letter of formal notice to Bulgaria,
the first formal stage in infringement proceedings. Bulgaria
has until October 15 to respond.

The Commission claims that Bulgaria has failed to transpose the
Deposit Guarantee Scheme Directive, which identifies three steps
in the procedure to allow a deposit guarantee scheme to pay the
claims of depositors.

First, the competent authority is satisfied that a deposit which
is due and payable has not been paid by a credit institution.

Second, within five working days after this conclusion, the
competent authority must determine whether the credit
institution concerned appears to be unable for the time being,
for reasons which are directly related to its financial
circumstances, to repay deposits which are due and payable and
to have no current prospect of being able to do so.

Third, the deposit guarantee scheme must be in a position to pay
duly verified claims of depositors within 20 working days after
the determination by the competent authority.

Under Bulgarian law, the deposit guarantee scheme is authorized
to pay the claims of depositors against a credit institution
only if the central bank has revoked the banking licence of the
institution concerned. The DGS Directive contains no such
requirement, the Commission notes.

The unavailability of deposits is sufficient to activate the
deposit guarantee scheme. In the case in hand, the deposits have
been unavailable for three months. Under general EU law
principles, national authorities are required to apply the
Directive in spite of contradicting provisions of national law.

As regards the Treaty principle of free movement of capital, the
conservatorship imposed by the Bulgarian authorities on the
banks concerned appears to constitute a non-justified and
disproportionate restriction to the free movement of capital.

The Commission notes in particular that the two banks have been
put into conservatorship with a complete suspension of payments
and bank activities, even though the domestic law allows less
intrusive measures, permitting a choice between full and partial
suspension of payments and limitation of activities.

In addition, the Commission recalls that EU law takes precedence
over national law. The relevant provisions of the DGS
Directive, which are unconditional, sufficiently clear and
precise, may under certain conditions confer rights on
individuals and businesses. These rights can be enforced against
the relevant bodies before a national court in order to obtain
payments in respect of unavailable deposits according to Article
10(1) of the DGS Directive.

The objective of this Directive is to ensure a harmonized level
of deposit protection by all recognized DGSs, regardless of
where the deposits are located in the Union.

Meanwhile, BTA learned that the European Banking Authority (EBA)
has opened an investigation into an alleged breach of Union law
by competent authorities in Bulgaria.

This investigation will look into whether measures taken in
Corpbank's conservatorship constitute a possible breach of the
requirements in the EU DGS Directive, according to which
depositors should be compensated no later than 25 working days
after the unavailability of deposits, the EBA said.

The Authority may subsequently address a recommendation to the
concerned competent authority setting out the action necessary
to comply with Union law.

The EBA is an independent EU Authority which works to ensure
effective and consistent prudential regulation and supervision
across the European banking sector. Its overall objectives are
to maintain financial stability in the EU and to safeguard the
integrity, efficiency and orderly functioning of the banking
sector.