Abstract
The development of the Bulgarian banking system is a complex and dynamic process that is driven by the effect of both internal and external factors. The country’s membership in the EU favours inflow of foreign capital into the system in the form of the purchases of most Bulgarian commercial banks. The domination of European capital forms a number of positives but also possibilities for distress by line of ownership. As a Member State of the EU with derogation, Bulgaria does not participate in the European Monetary Union. However, apart from the choice of the euro as a nominal anchor of the Currency Board, it can also be observed that there is tighter integration with the European financial system and, over the last few years, government declarations expressing the desire to become a full member of the Eurozone. That leads to commitments that demonstrate the viewpoint that it is possible to achieve significant improvements of the main dimensions of the system’s functionality while also increasing its credibility in the eyes of Bulgarian consumers of bank services and European investors. In 2014, the Bulgarian bank system faced a serious challenge – the crisis surrounds Corporate Commercial Bank (CCB), one of its biggest commercial banks. The goal of this article is to examine the methods, effectiveness and costs of stabilizing the system. At the same time, the authors also examine the approaches that would have been applicable to the same situation had the country been a member of the European Banking Union and had CCB been under the Single Supervisory Mechanism. The task, based on the above-mentioned case, to evaluate the positives and potential negatives of Bulgaria joining the Banking Union and to support membership in the European Banking Union. That would contribute towards additional stabilization of the Bulgarian banking sector and more effective resolution of capital adequacy issues, liquidity, solvency and security.
Highlights
Facing the deepest crisis in a generation, the member state governments and EU institutions worked together to address the pressing sovereign debt challenges and implement measures to prevent similar downturns in the future
The development of the banking system in Bulgaria directly mirrors the condition of the real economy; there are periods of time when the two processes do not run in parallel
A conclusion can be made that the banking system in Bulgaria is stable and the existence of temporary digressions from these conditions are linked to some internal factors, which do not change the trend that has set in
Summary
The purpose of the paper is to analyse and infer the stability of the banking system in Bulgaria, draw the reasons leading to the crisis of Corporate Commercial Bank (CCB, commonly referred to as KTB), and recommend one possible way of preventing similar situations. The paper analyses the approaches which could have been applied to this same situation, had the country been a member of the European Banking Union and the CCB subject to supervision under the single supervisory mechanism. The task is, based on the particular case, to estimate the benefits and likely costs of joining the Banking Union and to support the idea of European Banking Union membership which would contribute to further stabilisation of the banking sector in Bulgaria as well as to more effective resolution of the capital adequacy, liquidity, solvency, and security issues. The illustrative data cover the period after 2011– the time when the country has gradually overcome the consequences of the crisis of 2009
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