Deposit Insurance as an Element of Financial Safety Net: The Case of Bulgaria
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Transcript of Deposit Insurance as an Element of Financial Safety Net: The Case of Bulgaria
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DEPOSIT INSURANCE AS AN ELEMENT OF BANKING SECTOR STABILITY
Organized by Eurasia Regional Committee of IADI
Kiev, 25-27 May 2004
Deposit Insurance as an Element ofFinancial Safety Net: the Case of Bulgaria
Ms. Stefana Drianovska, Expert, International CooperationBulgarian Deposit Insurance Fund
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Participants in the Financial Safety Net
Central Bank (BNB)
Banking Supervision Department
Bulgarian Deposit Insurance Fund
Eurasia Regional Conference Kiev, 25-27 May 2004
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Bulgarian National Bank
Lender of last resort (LLR)
Introduction of the Currency Board in mid 1997– no LLR– lending facility – the deposit of the Banking Department
with the Issue Department
Eurasia Regional Conference Kiev, 25-27 May 2004
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BNB Banking Supervision Dept.
Eurasia Regional Conference Kiev, 25-27 May 2004
Drafts regulations (approved by the BNB)Supervises banksBanking Supervision Directorates– Supervision Policy and Methodology– Supervision Administration– On-site Supervision– Off-site Supervision and Analysis– Special Supervision
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Bulgarian Deposit Insurance Fund
Bulgarian Deposit Insurance Fund (BDIF) wasestablished by the Law on Bank Deposit Guaranty passed in April 1998
BDIF is a legal entity effectively operating as ofJanuary 1999
Eurasia Regional Conference Kiev, 25-27 May 2004
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BDIF Mandates and Powers
Law on Bank Deposit Guaranty (1998)- determines and collects annual and entry premiums from banks- invests its assets in accordance with the provisions of the LBDG- repays the insured amount of deposits in failed banks
Law on Bank Bankruptcy (2002)
Eurasia Regional Conference Kiev, 25-27 May 2004
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BDIF Mission
The Bulgarian Deposit Insurance Fund insures depositors’funds in banks and protect the interests of creditors in bank bankruptcy proceedings, hence promoting stability and confidence in the banking system, and contributing to economic growth and prosperity in Bulgaria.
Eurasia Regional Conference Kiev, 25-27 May 2004
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Bulgarian DIS - Main Features
Membership
Coverage
Funding
Investment
Repayment
Eurasia Regional Conference Kiev, 25-27 May 2004
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Membership
Mandatory membership for all banks legally licensed totake deposits
Under certain circumstances only foreign banks’ branchesmay be allowed not to participate in the system
32 members institutions (incl. 3 foreign banks’ branches)
Eurasia Regional Conference Kiev, 25-27 May 2004
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Coverage
Scope of coverage
– deposits of physical persons and legal entities
– deposits in national and foreign currency
Eurasia Regional Conference Kiev, 25-27 May 2004
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Coverage
Exclusions
– deposits of: banks and nonbank financial institutions; insurers;pension and social securities funds; investment intermediariesand companies; privatization funds; government and government institutions; municipalities; the BDIF
– bank’s senior officers and auditors, shareholders of more than5% of bank’s equity, and their close relatives; preferential rate deposits
– deposits associated with ‘money laundering’
Eurasia Regional Conference Kiev, 25-27 May 2004
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Coverage
Level of coverage– currently in full up to BGN 15,000 (EUR 7,670)
Application of coverage limits– per depositor per bank
Eurasia Regional Conference Kiev, 25-27 May 2004
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Increase of Coverage
1998 BGN 6,900 (EUR 3,528)2002 BGN 10,000 (EUR 5,113)
2003 BGN 15,000 (EUR 7,670)
2005 BGN 22,000 (EUR 11,248)2007 BGN 39,400 (EUR 20,043)
Eurasia Regional Conference Kiev, 25-27 May 2004
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Funding
Entry premiums from banks
Annual premiums from banks
Interest on BDIF investments
Proceeds resulting from BDIF subrogated claims
Other (loans)
Eurasia Regional Conference Kiev, 25-27 May 2004
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Banks Premiums – Flat Rate System
Entry premiums – 1% of registered capital; to be paidwithin 30 days from the date of bank registration
Annual premium contributions – 0.5% of total amount of previous year’s deposit base (insured) determined onaverage daily basis; due by March 31 in the current year
BDIF is considering the introduction of a risk-adjusted premium system
Eurasia Regional Conference Kiev, 25-27 May 2004
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BDIF Investment Activity
DIF resources are invested in:
– securities issued or guaranteed by the Bulgarian government
– short-term deposits with commercial banks – authorizedprimary dealers of government securities
– deposits with the Bulgarian National Bank
Eurasia Regional Conference Kiev, 25-27 May 2004
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Financing within Shortfall of Resources
By decision of BDIF Board shortfall may be covered by:– requiring an advance payment of premiums– increasing the annual premium (max. 1.5%)– drawing loans
Loans:– from the market– from the budget after a decision of Parliament
Loans may be secured by government guarantee or BDIFassets, incl. future claims on banks for annual premiums
Eurasia Regional Conference Kiev, 25-27 May 2004
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BDIF Resources
Target size of resources – 5% of the total amount of insureddeposits in the banking system
Current funds of BDIF – BGN 247 mio (EUR 126 mio)
Ratio of BDIF funds / deposits – 2.23%
Eurasia Regional Conference Kiev, 25-27 May 2004
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Repayment of Insured Amounts of Deposits
Deposits are repaid only in national currency
Repayment of insured amounts of deposits is done via aservicing bank determined by the BDIF ManagementBoard
Repayment begins not later than 45 days from the dateof revocation of bank’s license by BNB
Eurasia Regional Conference Kiev, 25-27 May 2004
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Repayment of Insured Amounts of Deposits
BDIF has successfully performed its insurance functionin the only two bank failures since its establishment
Credit Bank (Jan. 1999) – 94%
Balkan Universal Bank (Feb. 2000) – 63%
Eurasia Regional Conference Kiev, 25-27 May 2004
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BDIF Functions under Law on Bank Bankruptcy
Performs control over the lawful and appropriate exerciseof trustee’s powers:– appoints and removes a trustee– determines trustee’s remuneration– controls trustee’s expenses– controls transactions made by the trustee– issues methodological instructions to trustee relating to the
exercise his powers
Eurasia Regional Conference Kiev, 25-27 May 2004
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Functions under Law on Bank Bankruptcy
Prepares drafts regulations:
– Regulation on the reporting requirements and trustee’s budget – Regulation on trustee’s remuneration– Regulation on the BDIF inspections in the banks in bankruptcy– Tariff on the fees collected by the DIF relating to the exercise
of its controlling powers in the bankruptcy proceeding
Eurasia Regional Conference Kiev, 25-27 May 2004
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Control over Failed Banks
Under LBB BDIF has taken control over four failed banks
Expressed interest for purchase of failed banks
Negotiations under way
Eurasia Regional Conference Kiev, 25-27 May 2004
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Accountability of BDIF
Council of Ministers, BNB, National Audit Office
BDIF financial activities audited by National Audit Office
Eurasia Regional Conference Kiev, 25-27 May 2004
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Management of BDIF
Managed by a Management Board of five members –physical persons who are designated as follows:– the Chairman – by the Council of Ministers– the Vice Chairman – by the Bulgarian National Bank– one member – by the Association of Commercial Banks– two members – jointly by the Chairman and the Vice Chairman
Four years mandate; no restriction on reappointment
Eurasia Regional Conference Kiev, 25-27 May 2004
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BDIF Organization Chart(as of 1 January 2004)
Management Board
Chairman of the MBAssistant
SupportingActivities
Personnel &Qualification
Dept.
InternationalCooperation& PR Dept.
AccountingDept.
InvestmentManagement
Dept.
BankingDept.
LegalDept.
ChiefAccountant
Expert
SeniorAccountant
2 LegalAdvisors
4 ChiefExperts
Expert
2 InvestmentOperationsManagersInvestmentOperations
Expert
ChiefExpert
Expert
Driver
Steward
2 Guards
Cleaner
Eurasia Regional Conference Kiev, 25-27 May 2004
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BDIF Dedicated Staff
15 dedicated experts
Personnel Management Policy
Internal Rules for Ethical Behavior
Training
Eurasia Regional Conference Kiev, 25-27 May 2004
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BDIF Public Relations
Objectives and principles
Organization of activities
Public Relations Rules
PR and communications activities
Eurasia Regional Conference Kiev, 25-27 May 2004
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BDIF International Cooperation
International Association of Deposit Insurers – IADI
European Forum of Deposit Insurers – EFDI
Bilateral cooperation
Eurasia Regional Conference Kiev, 25-27 May 2004
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Interrelationship Among Safety Net Participants
Law on Bank Deposit Guaranty stipulates that Bulgarian National Bank (BNB) provides BDIF with the informationon bank deposits needed to calculate contributions paid bybanks as well as bank financial information to facilitateassessment of BDIF insurance risk
Eurasia Regional Conference Kiev, 25-27 May 2004
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Interrelationship Among Safety Net Participants
Memorandum of Understanding between BNB and BDIF,signed Nov. 1999
Letter of Cooperation signed with the Association of Commercial Banks, Aug. 2001
Eurasia Regional Conference Kiev, 25-27 May 2004
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How to Contact BDIF
Bulgarian Deposit Insurance Fund2, Graf Ignatiev Str., 3rd Floor, 1000 Sofia, BulgariaTel.: +359 2 980 1438; Fax: +359 2 988 8207E-mail: [email protected]: http://www.dif.bg
orInternational Cooperation and Public Relations Dept.Ms. Stefana Drianovska, ExpertTel: +359 2 981 3809; E-mail: [email protected]
Eurasia Regional Conference Kiev, 25-27 May 2004
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Thank you for your attention
Eurasia Regional Conference Kiev, 25-27 May 2004