Analytical Note “Risks and peculiarities of the banks liquidation process”

11 September 2015

The Institute for European Politics and Reforms (IEPR) believes that due to the lack of a transparent and effective mechanism that would prevent fraud in the banks liquidation process, depositors of the three banks are exposed to major risks. In this regard, a Creditors’ Committee should be created, composed of representatives of the depositors, the Government and the National Bank, which should meet on a monthly basis. The recommendation is contained in the Analytical note “Risks and peculiarities of the banks liquidation process”, developed by the IEPR experts, Eugen Ghiletchi and Sergiu Tofilat.

They state that the liquidation of any company requires that they have debts and their payment order established, as well as the valuation of assets to be sold for covering the debts. At the same time, the Law on financial institutions provides that the selling price of the assets shall be determined based on evaluation reports.

But according to experts, there are gaps in the legislation that allow selling the bank property at ridiculous prices. “A clear example is the issuing of the reports on property evaluation, which contain an intentionally diminished market value.  Similar frauds have taken place in other banks liquidation process, the most recent case being Investprivatbank,” mention the authors of the Analytical note.

They state that immediately after the bank license withdrawal, the payment order of debts to creditors will come into force. First, the debts, owed to the National Bank should be paid, then owed to the Ministry of Finance, after which to other banks and Deposit Guarantee Fund. Taking into account the size of debts towards these lenders, there is a risk that the depositors will not get their money at all.

According to the experts, if the Government guarantees are be converted into state debt, its share could rise to 40% of GDP, the highest level recorded since 2004. “Under the present circumstances this would mean additional costs of about 2.5 billion lei annually for the budget. For comparison, in 2014 the state debt servicing came out in about 590 mln. lei for the budget”, shows the analysis.

The Analytical Note was made ​​within the IEPR project of public policymaking together with citizens, which is supported by the European Endowment for Democracy.

See analytical note “Risks and peculiarities of the banks liquidation process”:

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