National Bank of Romania to set up a bridge bank for troubled banks

Romanian authorities are finalizing the regulatory framework that would set up the legal mechanism for bridge banking, which would act as an administrator in the event a bank were to face problems.

The preventive agreement that has been signed by Romania with the IMF stipulates that the Romanian side will pass amendments to the Deposit Guarantee Funds (DGF) which would allow for the use of resources administered by DGF to facilitate restructuring measures authorized by the National Bank of Romania (NBR) regarding the transfer of deposits, including purchase and assumptions, if such would be less costly than the direct payment of deposits guarantees.

The stand-by agreement states that the bridge bank mechanism should be introduced into legislation by end-October. The bridge bank would be a new, temporary, full-service bank authorized and supervised by NBR, with the aim to facilitate its sale, in whole or in part, to eligible private acquirers as soon as practicable.

Jeffrey Franks, head of the IMF mission in Romania, mentioned last week in a conference on economic growth that Romania should build buffers and cushions in the core of the economy, so as to protect Romanian consumers and investors.

With more than 80 percent of the banking system controlled by foreign banks, Romania is particularly vulnerable to increasing banking sector uncertainties elsewhere in Europe.

The chief economist of NBR, Valentin Lazea, already expressed his opinion during a conference on economic growth held last week, that the exposure of foreign banks in Romania might be limited, and that some sort of a new Vienna agreement would have to be signed, granting that foreign-owned companies will not reduce the exposure in Romania.

At present, the solvency ratio of the Romanian banking system is averaging at 14 percent.