Addressing the stigma issue is extremely complex and has potentially affected a number of central bank operations internationally. One way of addressing perceptions of stigma is through appropriate policies on disclosure. While headline results of the Bank’s auctions, such as total bids and total amount allotted, are published immediately at their conclusion, we publish only the average daily amount outstanding in the DWF over the quarter, aggregated across firms, and even that with a one-quarter lag. The intention is that DWF drawings will not be disclosed until after they have terminated. Moreover, where structured as a liquidity upgrade, DWF borrowings would not be visible on the Bank’s balance sheet, reducing the risk that any drawing is unintentionally revealed. Another possibility is that counterparties are concerned about being “spotted” using DWFsourced gilts in the repo markets. For the majority of cases, however, I think there are simple ways to alleviate these concerns – for example by encouraging banks to set up multiple repo counterparty relationships and rotate their regular gilt repo business amongst them. That would deliver wider business and financial stability benefits, even in the absence of the DWF. Indeed, the FSA requires banks to test their repo capacity by lending out gilts from their liquid asset buffers. Ultimately we expect a counterparty would draw on the DWF if it had to, despite any stigma concerns. The risk is that the perception of stigma might delay an application to borrow, making a firm’s liquidity position more perilous.
I am pleased to inform the public that based on the outcome of the review and stress test, the Governing Council have concluded the following: 1. The Bulgarian banking system is stable. The main indicator of a bank’s financial resilience, the ratio of bank common equity tier one capital to its risk-weighted assets, or the CET 1 ratio, remains significantly above the required minimum regulatory requirements on a system level and is above the EU average as announced in the latest European stress test. The CET1 ratio adjusted for the results of the asset quality review is 18.9% on system-wide level compared to the minimum regulatory requirement of 4.5%. The stress test indicated that if the latest 2018 macroeconomic forecasts materialize, the CET1 ratio would increase to 22.2%. In the case of a severe economic crisis, which is very unlikely, the CET1 ratio would decline to 14.4%. For the European banks, the results are significantly lower – 13.9% and 9.4% respectively. Therefore, banks’ capital adequacy is strong and banks have the capacity to absorb shocks in unfavorable market conditions. 2. The capital adequacy of each bank after potential adjustments from the asset quality review remains above the minimum regulatory requirements. Indeed, the individual results vary across banks. Follow-up plans have been developed in line with individual results and include measures aimed at maintaining existing capital buffers for some banks or increasing capital buffers and decreasing risk-weighted assets for others.