Five people were arrested Sunday for allegedly sending text messages containing false information about Bulgaria’s banks as a more serious bank run was averted after the government offered a credit line to calm frayed nerves.


Bulgaria’s banking system destabilization averted

The Associated Press is reporting that five people were arrested Sunday for using text messages, e-mail and even old school phone calls “to spread false information that caused detriment to commercial banks and destabilized the banking system.”

On Friday banks had to close their doors early in Europe’s poorest country due to a run on the banks, but on Monday the situation has stabilized.

Victims of Bulgaria’s bank run

Bulgaria’s third-largest bank, First Investment Bank, was victim of a run only days after the fourth-largest lender, Corpbank, had been put under special central bank supervision after itself experienced a run. AP is reporting that some Bulgarians continued to withdraw money from First Investment Bank on Monday, but lines “were visibly smaller than on Friday, when the bank had to close early because of the rush to withdraw deposits.”

Bulgarian officials were calling the event a criminal plot to undermine trust in the banks with rumors triggered runs on deposits. Specifics of the case, or a profit motive for such actions, were not detailed in the report. In the wake of the event, the Bulgarian central bank proposed changing the law for “willfully disseminating misleading information about banks” punishable with five to ten year prison sentences, a significant rise considering such communication is currently only punishable with fines.

Bank liquidity shortfalls caused widespread concern

Rumors of bank liquidity shortfalls were reported to have caused widespread concern, but the government reassured depositors and decided to offer a 3.3 billion-leva ($2.25 billion) emergency credit line to the banks to stabilize them.

“There is no banking crisis but a crisis in confidence and criminal attacks,” President Rosen Plevneliev, was quoted as saying. “We have sufficient reserves, means and tools to deal with any attempt at destabilization, and we stand behind each bank that becomes the target of an attack,” he said.

The EU Commission, whose approval of bank rescue programs is needed, said “the Bulgarian banking system is well capitalized.” Bank stocks soared Monday after the European Commission, the EU executive, cleared the move to offer the emergency credit line. Bulgaria’s president indicated the country would remain committed to the Euro and have its currency, the lev, pegged at a fixed rate to the Euro currency despite volatility concerns.