The Deposit Guarantee Fund should create the bridge bank and enable it to take over a lender facing serious solvency and liquidity problems.
It remains to be seen what criteria will regulate such a takeover, i.e. whether the new mechanism to save a bank will apply to any lender.
Romania pledged to regulate the operation of the bridge bank by the end of October and do so by extending the range of instruments, which will allow swift interventions in the system, with minimum negative effects on the overall financial stability.
BNR’s board of directors was to discuss the approval of these new regulations on Friday. Adrian Vasilescu, advisor of central bank governor Mugur Isarescu said the changes would be made public soon, once the board of directors gives its final approval.
The violence of the financial crisis that broke out in 1998 caused rapid changes of the legislation regulating banking supervision throughout the world. The central bank has been discussing the adjustment of the supervisory legislation to the new circumstances for a while now, so as to be able to act fast when the condition of bank deteriorates.
BNR used to wait until all the stages required by the bankruptcy legislation had been completed in the past. Now it no longer wants to wait until that happens, which can be much more costly than the introduction of a bridge bank to manage the assets and liabilities of an ailing bank.
The bridge bank will be a new bank with a limited duration of operation, and a complete range of services licensed by the BNR, which will also supervise it. It will quickly take over the deposits and loans of a bank that can no longer cope and will ensure continued operation without any interruption of the normal schedule.
The bridge bank will continue to fulfill commitments to depositors and avoid interrupting/requesting early repayment of ongoing loans.
The main goal of this new bank will be to find eligible private investors to take over, partly or fully as soon as possible. The lifespan of such an institution is limited to three years in the USA, but it may be extended. If no buyer is found, the asset portfolio might go to the Deposit Guarantee Fund that will handle the liquidation.
(English version by Loredana Fratila-Cristescu)