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Banking

The mystery of Bulgaria's bank run

Two of Bulgaria's biggest banks have been under pressure this week from insolvency rumors. The country's central bank has alleged there is a malicious media campaign to discredit its banks.

Bulgarien Bündel Lew

Bulgarian currency

Bulgaria's government claims shadowy figures are responsible for the collapse of one of the country's biggest banks - and are attempting to bring down the rest of the country's banking system by stirring panic.

Bulgarian National Bank Governor Ivan Iskrov released a statement saying that in recent days, there had been "an attempt to destabilize the country through an organized attack on Bulgarian banks... carried out by means of an epidemic of rumors and malicious public statements."

A central bank spokeswoman was unable to tell DW who might be behind the purported attack, or what the attackers' motivations might be. She said the interior ministry had launched an investigation to try to shed light on these issues. The ministry refused comment.

Bulgarien Bankwesen Logo Corpbank 23.06.2014

Corpbank was taken into receivership by the Bulgarian National Bank on 20.6.2014

The accusations come in the wake of the insolvency of Corpbank, the country's fourth-largest bank, last Friday (20.6.2014). Media reports of suspect dealings led to a run on deposits that caused the central bank to take control.

The central bank said it would appoint receivers to clean up Corpbank's balance sheet so that it can be relaunched on July 21. The government guarantees clients' deposits, but Corpbank's owners lost out, as its shares are now worthless.

Big banks tend to have complex debts and obligations to other big banks, which makes the failure of any large bank a potential threat to the stability of the wider financial system. That's what motivated the central bank to step in last Friday - and to emphasize that Corpbank's problems were isolated.

But now, rumors of unknown provenance are circulating that First Investment Bank, Bulgaria's third-largest bank, may be in trouble as well. The central bank insists this is untrue, but even baseless rumors can push a healthy bank over the edge if they cause large numbers of fearful depositors to rush to withdraw cash in excess of the bank's own reserves.

Bulgarien Premierminister Orescharski 13.06.2014

Bulgaria's Prime Minister Plamen Oresharski says the country's banks are solvent

Following appeals by the central bank, Prime Minister Plamen Oresharski attempted to reassure depositors, saying they had no cause for alarm. Interior Minister Tsvetlin Yovchev said the government would investigate attempts to destabilize the banking system. But the source of Bulgaria's rumors is still unclear.

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