The CorpBank case and the unanswered questions

For more than a month, leading economists and bankers have been analyzing what is happening at CorpBank and, together with politicians, are looking for a solution to the crisis at the fourth largest bank in Bulgaria. At the moment, experts are waiting for more complete information about the quality of the bank's assets, and politicians are on the verge of raising the debt limit that the government can take on in 2014.

The liquidity crisis that CorpBank is facing is a consequence of the selection of sources with which the bank has financed its loan portfolio and other investments. CorpBank has maintained a balance sheet with predominantly short-term liabilities and long-term assets (the so-called maturity mismatch, also known as fractional reserve banking), and has also allowed its deposit base to be concentrated (the presence of deposits, the amount of which represents a significant share of the bank's total liabilities).

With a high degree of certainty, we could assume that there is a connection between the size and structure of CorpBank's liabilities and the political connections of the bank's majority owner, deposit guarantee, and unfinished privatization.

Perhaps the most debated issue surrounding the CorpBank case was whether the government should reimburse all CorpBank depositors or only those with deposits of up to 100,000 euros, as provided for by existing legislation. But there are other issues that deserve our attention.

Fractional reserve banking

Isn't modern banking inherently unstable and isn't it time to discuss banking reform?

Deposit guarantee

Does the Bank Deposit Guarantee Fund, established in 1998, not increase the stability of the banking system, but reduce it by making depositors less cautious? Does the socialization of credit risk contribute to the emergence of economic crises, and is the assumption of bank losses by taxpayers inevitable, since the fund has only 2.1 billion leva in assets with almost 40 billion leva in deposits that fall under its protection? Was the creation of the fund not actually aimed simply to ensure financing of the banking sector in Bulgaria after the collapse of 1996-7, misleading Bulgarians that banking crises of this scale are a thing of the past?

State assets

Can we say that state assets are actually liabilities for the taxpayer, used for personal enrichment by people with political connections?

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