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Bulgaria; European Union: Bank Depositors Denied Access to Their Deposits in Bulgaria

(Oct. 8, 2014)

On September 25, 2014, the European Commission instituted infringement proceedings against Bulgaria arising from its failure to pay the claims of depositors at two closed banks. The Commission sent a letter of formal notice to Bulgarian authorities informing them that the country had committed two violations of European Union legislation:

(a) incorrect transposition of articles 1(3) and 10(1) of Directive 94/19/EC, the Deposit Guarantee Scheme Directive. (Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on Deposit-Guarantee Schemes, 1994 O. J. (L 135) 5 EUROPA; note that the Directive has been amended); and

(b) failure to comply with the principle of free movement of capital under article 63 of the Treaty on the Functioning of the European Union (TFEU). (Press Release, European Commission, Bulgaria Must Allow Bank Customers to Access Their Money (Sept. 25, 2014), EUROPA.)

Based on current Bulgarian legislation adopted pursuant to Directive 94/19/EC, the deposit guarantee scheme is activated to pay depositors against a credit institution only if the central bank in Bulgaria has revoked the banking license of the institution involved. This requirement is in conflict with Directive 94/19/EC, which does not have such a provision, and simply provides that unavailability of deposits suffices to activate the deposit guarantee scheme. (Id.)

The Commission felt compelled to initiate proceedings because the deposit guarantee scheme in Bulgaria has not paid depositors who have deposits in two banks, the Corporate Commercial Bank AD and Commercial Bank Victoria EAD, which have been closed since June 15, 2014. The Commission has been assisting the Bulgarian authorities to solve the problem, because of the hardship it creates for individuals and companies and because it undermines the trust of the public in the deposit guarantee scheme. (Id.)

The deposit guarantee scheme was also tested during the banking crisis in Cyprus in March 2013, when the euro-zone members imposed a one-time tax on deposits held in Cypriot banks. As a result, public confidence was crushed, and citizens and foreign investors stormed the banks in an attempt to withdraw their deposits. (Theresa Papademetriou, The Cyprus Banking Crisis and Its Aftermath: Bank Depositors Be Aware, IN CUSTODIA LEGIS (Apr. 4, 2013).)

In regard to Bulgaria’s violation of the principle of free movement, article 63 of TFEU prohibits restrictions on movement of capital and on payments between Member States and between Member States and third countries. (Consolidated Version of the Treaty on the Functioning of the European Union, 2012 O.J. (C 326) 47, EURLEX.)

Bulgaria must respond to the Commission within 15 days. (Press Release, supra.)