Dimitar Radev: Crisis management framework in Bulgaria Summary of statement by Mr Dimitar Radev, Governor of the Bulgarian National Bank, at the annual meeting of governors and other central bank representatives from the countries of the Dutch-Belgian constituency of the IMF, organised by the National Bank of Belgium, Brussels, 24 February 2017. * * * The closure of the fourth largest bank in Bulgaria in 2014 put to the test the country’s financial stability. This incident revealed, among other things, serious limitations in our crisis management arrangements in the banking area and, more specifically, the lack of a proper institutional framework to deal with resolution of systemically important banks. Our policy response to the 2014 crisis was incorporated in an 18-month plan adopted in mid2015, defining concrete actions in three priority areas: An independent assessment of: (1) the banks in Bulgaria (through an AQR and stress tests that were completed in 2016), and (2) our crisis management framework (through a still ongoing financial sector assessment, FSAP, by the International Monetary Fund and the World Bank); A comprehensive reform of the Central Bank’s banking supervision and regulation framework and practices, based on the Basel Core Principles (BCP); Introducing the BNB’s new bank resolution functions compliant with the European Bank Recovery and Resolution Directive (BRRD). The implementation of the plan helped build sound foundations for our crisis management framework.
First, in the area of monitoring and assessing risks to financial stability, central banks can benefit from extended access to supervisory information and intelligence to better understand risks and vulnerabilities for the financial system as a whole. At the same, there is clearly the issue, of how to translate the outcome of the financial stability assessment into supervisory action. In principle one cannot but agree that there should be a way through which, if the central bank identifies serious risks to financial stability, the competent supervisor should be able to act. Therefore, communication needs to go both ways: from the central bank to supervisors and vice versa within the respective legal framework. Second, in the area of liquidity, there is clearly room for a closer interplay between the two authorities. Central banks would benefit from enhanced access to supervisory information and intelligence for its role of maintaining stable money markets. To that end for instance access to information on banks’ liquidity contingency planning funds would be useful. At the same time, supervisors would benefit from information available at central banks stemming from their role in the money markets. Third, in the area of crisis management and resolution, depending on the nature and feature of the crisis, there is a need for close interaction between the two authorities. Provision of Emergency Liquidity Assistance is a clear point in case where central banks need supervisory information for decision-making.