Loading ...In the event of a lasting financial crisis, the government could provide guarantees for the banks’ placements on the interbank market, Ion Dragulin, director of the National Bank of Romania’s (BNR) Financial Stability Department told daily Ziarul Financiar.
The expert said that taking action during October’s tense interbank conditions, BNR intervened to restore market confidence, because some banks had liquidity but were unwilling to lend to other banks facing a liquidity shortage, but not a solvency issue.
The expert said that taking action during October’s tense interbank conditions, BNR intervened to restore market confidence, because some banks had liquidity but were unwilling to lend to other banks facing a liquidity shortage, but not a solvency issue.
“If our expectation of a long-term recovery of the functioning of the inter-bank market proved wrong and mistrust came back and interbank operations went slack, the government could secure the operations,” said the head of the Financial Stability Department.
This would mean that the state secures a loan extended by a bank to another one, guaranteeing that the lender will duly recover its money.
This would mean that the state secures a loan extended by a bank to another one, guaranteeing that the lender will duly recover its money.
In October, local banks borrowed from BNR a record-high 48.99 bln lei (the equivalent of 13.3 bln euros) for an interest of 14.25% per annum, at a time when they were unable to attract financing from the market.
“The figure was a shock for the market, pointing out how tense the situation has been in October, when banks practically no longer trusted to lend,” writes the paper.
At that moment, BNR chose to inject liquidity by Lombard credits and bilateral operations, swap currency operations included.
“The figure was a shock for the market, pointing out how tense the situation has been in October, when banks practically no longer trusted to lend,” writes the paper.
At that moment, BNR chose to inject liquidity by Lombard credits and bilateral operations, swap currency operations included.
The BNR official said that in the hard-to-imagine scenario according to which, despite the central bank’s injecting liquidity in guarantees and state security the market would still be blocked, the state’s securing these deals on a limited period is a possibility worth considering.
“One cannot intervene wherever it is necessary. Interventions need to be made where they are top efficient, usually with banks of systemic importance. Yet a small-sized bank disseminates the depositors’ mistrust just like a large bank and the contagion effect is now stronger than in previous times of crisis,” underscored the director of the BNR Financial Stability Department.
Would a bank be facing liquidity issues but could produce eligible guarantees to BNR, it could qualify for a liquidity injection. In the case of an insolvent bank of systemic importance, the government could intervene by taking over the delinquent credits and by capital injection, said the BNR official.
Loading ...
Comentează acest articol