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Luni, 26/10/2015

 Romania will be forced to pay penalties for every day of delay until it fully transposes the legislation on Bank Recovery and Resolution Law (BRRD), which also involves the application of the bail-in (a procedure which involves the confiscation of the unguaranteed deposits, to save distressed banks), according to a press release of the European Commission.

     This states that the European Commission has decided to notify the Court of Justice of the European Union (CJUE) concerning the failure to transpose the bank recovery and resolution law by Luxemburg, Poland, the Czech Republic, Romania, Sweden and the Netherlands (BRRD), stating: "The notification of the Court involves at least the imposing of a daily comminatory penalty until the full transposition is completed. The amount of those penalties is calculated in such a manner so as to take into account the payment capacity, the duration and the gravity of the infringement by the member state in question. The Commission can decide to withdraw this case if a member state implements the EU regulations in question".

     According to legal experts, the European Commission is entitled to apply such penalties.

     Among others, the EC press release also states: "This directive (2014/59/EU) is a core element of the regulatory framework set up to create a safer and more solid financial sector following the financial crisis. The directive is also an important document for the EU Banking Union. The new norms introduced through the BRRD provide the national authorities with the instruments and the abilities needed to attenuate and to manage the major difficulties or the default of banks and big investment firms in every EU member state. The goal is to guarantee the fact that banks that are on the edge of insolvency can be restructured without requiring taxpayers to bear the cost for maintaining financial stability, for distressed banks. To this end, they provide inter alia for shareholders and creditors of the banks to pay their share of the costs through a "bail-in" mechanism. It is extremely important that these norms are in effect in every member state".

     The deadline for the transposition of these norms in the national legislation has been December 31st, 2014. The Commission sent a reasoned opinion to 11 EU Member States on 28 May 2015 (IP/15/5057), asking them to transpose the BRRD. As full transposition of the new rules did not occur in six EU Member States, they are now being referred to the Court".

     The failure to implement the law which stipulates the application of the bail-in to save the troubled banks runs the risk of placing in doubt the credibility of the Banking Union, some European sources told us a month ago.

     At the time they stipulated that the current situation concerning the transposition into the national legislation of the European Banking Resolution Directive is "unsatisfactory, causing legislative uncertainty and involving political and legal risks if banks were to encounter difficulties".

     Romania is among the countries which the EC has filed the infringement procedure against for the failure to transpose Directive 2014/59/EU.

     In May, the European Commission has asked 11 member states (Bulgaria, the Czech Republic, France, Italy, Lithuania, Luxemburg, Holland, Malta, Poland, Romania and Sweden) to fully implement the law mentioned above.

     "The request has been made in the form of a motivated opinion, which represents the second phase of the EU infringement procedure.

     Since May, some countries have taken certain steps to ensure that they are in line with the EU regulations concerning the European Directive on resolution and restructuring. Others have not done that", the quoted sources further told us.

     They have also added that the countries that have completely transposed the EU regulations into their national legislation are Austria, Germany, Finland, Great Britain, Ireland, Greece, Latvia, Estonia, Hungary, Croatia, Slovakia, Portugal, Denmark and Bulgaria, and those that have partially implemented this law are Belgium, Spain, Cyprus, Malta, Netherlands, Slovenia and France.

     Thus, Romania is not among the countries mentioned by European officials, which already have a a complete or partial banking resolution law.

     The Romanian Finance Ministry has sent to the Parliament for discussion a legislative draft drawn up by the National Bank of Romania (NBR) which concerns the creation of a Bank Resolution Fund. 

     Economic analyst Ionel Blănculescu thinks that such a legislative draft has not been approved until now because it would be unconstitutional, as it also concerns the application of the bail-in.

     Mr. Blănculescu recently told us: "The situation is very clear - once the European formula is agreed upon, I, as a depositor, will be put in the situation wherein, in order for the bank to be saved, my money will be taken through the bail-in, instead of the state intervening. Depositors have placed their money with the bank for it to be protected, instead of the institution in question taking them away. In other words, that money is the depositor's property, and if they get seized the right of ownership is infringed upon, and thus, the constitution is violated. This results in the law being unconstitutional and perhaps that is the reason why no such project has been approved so far".

     Concerning this procedure, Nicolae Cinteză, the head of the Oversight Division of the NBR told us, in early June: "The text that the Central bank sent to the Ministry of Public Finance does nothing else but transpose the European provisions. We have to understand that it's not the NBR that demands the application of the bail-in, as one of the possible solutions to saving distressed banks, but the European Union".

     Ordinance 99/2006 concerning the lenders and capital adequacy says that the second measure to stabilize a bank involves the possibility of the Deposit Guarantee Fund becoming a shareholder of the financial entity in question.

     Bogdan Olteanu, the deputy governor of the NBR, explained to us that the resolution is the mechanism which saves the good parts of troubled banks, as it is thought that a liquidation according to the general insolvency principles would cause too much collateral damages.

     The shareholders of the institution subjected to resolution will be the first to bear the losses, as the creditors of the bank will also bear losses after the shareholders, in line with the order of the priority of claims in the insolvency proceedings, unless expressly stipulated otherwise in the current law, and individuals and companies that have contributed to the major difficulty of the institution are held liable according to criminal and civil legislation. 

      IMF: "Speeding up the adoption of the much delayed legislation in the financial sector will also contribute to the strengthening of the current legal framework"

     The speed up of the adoption of the "so much delayed legislation in the financial sector" - concerning the shut down of banks, the guarantee of deposits, the macroprudential oversight and the guaranteed bonds - will contribute to the strengthening of the current legal framework and to its alignment to the good international practices, the officials of the IMF state.

     At the end of its visit she did to Romania a few days ago, the head of the IMF mission, Andrea Schaechter, said: "The banking sector is one step closer to the reinvigoration of intermediation. This area has dealt with the uncertainties concerning Greece in summer this year and continues to maintain sufficient capital and liquidity reserves. As the balance sheets have consolidated and the economic turnaround has gained ground, the private sector lending has started showing incipient recovery signs. At the same time, maintaining strong reserves will be essential for the banks to be able to manage the considerable legal risks".

     As far as the modernization of the insolvency regime in Romania is concerned, the process is advancing, the IMF official thinks, and she emphasized that the mission has recommended the consolidation of the secondary legislation project, to ensure the efficient implementation of the legislative framework concerning personal insolvency.