Bulgaria has been in the midst of a terrifying bank run unlike any they have seen in the past 17 years.
Bank runs at Corporate Commercial Bank (Corpbank) and First Investment Bank, the fourth and third largest banks in Bulgaria, began in June after customers began to receive messages via text, email and even Facebook telling them to pull funds from some of the nation’s biggest banks.
The Bulgarian central bank took control of Corpbank after over 20% of its deposits were yanked out in a week.
Meanwhile, depositors withdrew €400 million ($547 million) from First Investment Bank on June 27.
The run on Corpbank is said to have stemmed from a rivalry between Tsvetan Vassilev, the bank’s largest shareholder, and Delyan Peevski a member of parliament, according to Jack Ewing and Georgi Kantchev at The New York Times. From the NYTimes:
By some accounts, the crisis at K.T.B., which is controlled by Mr. Vassilev, began when Mr. Peevski withdrew large amounts of money. According to this version of the story, allies of Mr. Vassilev retaliated by spreading rumours about F.I.B., where Mr. Peevski was believed to have deposited the money he had taken out of K.T.B. Both banks were vulnerable because they had attracted deposits by paying unusually high interest rates.
“It’s really the war between the two oligarchs that has created a problem with those banks,” said Tsveta Petrova, an analyst at the Eurasia Group, a political-risk consulting firm. “It’s not a problem with the banking system.”
This has come amid a political rout in Bulgaria which is expected to see prime minister Plamen Oresharski resign soon, and to face elections on October 5.
Six people have been arrested over the weekend on suspicions over their involvement.
The European Commission provided an emergency credit line in the amount of 3.3 billion Bulgarian lev ($2.3 billion) to maintain liquidity in Bulgaria’s banking sector.
The Bulgarian National Bank has moved to criminalise the dissemination of “misleading or false information or any other information about any bank or financial institution, which may lead to causing commotion and fear in the population.” The amendment to the Penal Code asks for a prison term of two to five years. It also asks for a harsher sentence and a fine if such “activities” cause “significant damages or have afforded significant illegal incomes.”
Bulgarian President Rosen Plevneliev has reiterated that the nation’s banking sector is in fact “stable, well regulated and capitalised,” according to Bloomberg.
For now the emergency credit line seems to have helped stem the crisis, and analysts don’t expect this to spread to foreign banks in Bulgaria. But it will be some time yet before we understand what truly drove Bulgaria’s bank run.
Corpbank is still closed, but First Investment Bank resumed operations on Monday.
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