Forbes: The Curious Case of the Bulgarian Bank Runs
The full text was published on Forbes magazine's website.
"So now we know what lies beneath the recent Bulgarian bank runs. Fraud," Frances Coppola argues in an article on the Forbes magazine's website.
Coppola's text is dedicated to the events at Corporate Commercial Bank (KTB), which the Bulgarian National Bank (BNB) stripped of license on Friday.
Reminding the Bulgarian National Bank (BNB)'s findings about KTB, as presented by central bank Governor Ivan Iskrov in a statement, she put an emphasis on BNB's description of the conserved financial institution as "a bottomless barrel".
She also argues that the latest developments raise "considerable questions about the capability of the BNB to supervise banks effectively," as BNB gave "a clean bill of health" to KTB just a month ago, and now says it is "bankrupt because of a major fraud".
Coppola writes that BNB, though realizing its supervision on KTB was "inadequate", holds only the "unfortunate official (unnamed) who is Deputy Head of Banking Supervision", a move which "does not bode well for the future of bank supervision in Bulgaria".
Commenting on initial reports [later dismissed] which suggested a total of BGN 206 M had been withdrawn in cash on June 19 at the request of KTB majority shareholder Tsvetan Vasilev, she quoted the lawyer for KTB executive Margarita Petrova as declaring the accusation against her client was "a smokescreen to hide what they describe as BNB's "bungling" of the case".
The author adds the lawyer has a point, as a cash transaction of that size would by any standards be an "extraordinary event": "Surely someone would have noticed truckloads of lev and Euros leaving a bank in Sofia the day before the bank failed?"
As for the reasons leading to the bank run, Coppola qualifies them as "too murky".
She names, however, the decision of "a major depositor, the businessman Delyan Peevski", to remove his funds from the bank as he reportedly had a dispute with Vasilev.
But it is unclear what underpins his move, she believes. "What I want to know is why he removed his funds at all. What information did he have that sparked the decision, and where did he get that information from?"
The version of Vasilev, who maintains an "orchestrated campaign to discredit him" is being played out, is neither ruled out as implausible.
"[KTB] and its officials - and perhaps the BNB too" could be pawns in a complex game played among "Bulgarian oligarchs", Coppola hypothesizes.
"The winner gets to control the Bulgarian financial system and probably its government too, and the losers end up in jail, exiled or dead."
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This shows up that national banks in general have too cosy a relationship with the boards of the banks they are supposed to control. Bulgaria is not alone mark the demise in other countries (Bank of England, US federal reserve bank) which caused the financial crash of 2007/8 across the west, same reason. This means that National banks should hold themselves aloof from the banks they control, their inquiries and checks into a banks finances and practices should cause a ripple of consternation in any bank when the national bank inspectors arriveand the inspectors should be made aware that they have the upper hand.