Considering the political and economic context our country found itself in, as well as the pressure the authorities are under regarding unblocking the financial international support, the process of drafting the Bank recovery and resolution law was started in the spring of 2016. The process was a rather short one, the authorities being guided by the timeframe established in the Roadmap on the priority reforms agenda and the stringent need of a Financing Agreement with the International Monetary Fund.
The bank resolution foreseen by the law is an alternative to the usual insolvency procedures, that allows the situation of a bank in difficulty to be treated efficiently taking the general public interest into account. Considering that the bank recovery and resolution law foresees that the resolution authority has to prepare resolution plans for each bank (the actions to be taken should resolution become necessary), NBM as well as other involved institutions should not limit themselves to adopting this law, but should transpose the secondary legislation and mandatory technical standards on the main aspects of recovery and resolution developed by the European Bank Authority (EBA).
Of course, it is very unlikely that the entire banking system fails at the same time, regardless of the laws adopted by the Parliament. However, in the context of transposing the EU Directive on establishing a framework for recovery and resolution of crediting institutions and investment firms into the national legislation and establishing 01.01.2018 as target date when the bail-in tool enters into force, the legal framework related to deposits guarantee in the banking sector which cannot provide a solution in banking crises needs to be modified.
Considering the above mentioned, as well as in order to ensure solid and logical reforms in the financial and banking sector for the following period we consider the following recommendations need to be implemented:
The European regulatory framework on solving banking crises is not reduced to the Directive 2014/59/UE, but goes on with mandatory technical standards regarding the main aspects of recovery and resolution developed by EBA which need to directly be transposed into the NBM regulatory documents;
• With the adoption of the law, the implications of the new provisions and tools on other elements of the financial system have to be taken into account, such as the maximum ceiling for deposits guarantee, the its limit of MDL 6000 not corresponding to the current economic realities anymore;
• The banking crisis and the urgent need to reform the sector lead to certain negligence in observing the commitments taken by signing the EU Association Agreement. Thus, a calendar plan needs to be developed for the harmonization of the legislation on financial services according to the Georgian and Ukrainian model;
• Although the law provides the establishment of the National Macroprudential Authority, there were no clear actions taken in this sense so far. At the end of March, the German Economic Team in Moldova and the “Expert-Grup” Independent Think-tank, based on the international best practice have presented the reasons and how this forum should be reformed to the Government . Thus, we recommend the acceleration of the process to establish the National Macroprudential Authority according to the international model and good practices in the field, namely a smaller number of members with a reduced political exposure and strict relevance in view of financial stability.
• This law is one of the most complex legislative documents Moldova can have. In addition, the text of the law is quite technical and not understood by the vast majority of the population, which is actually targeted by the provisions of the law in light of their relationships with the banking institutions. In this respect, we encourage the initiation of NBM coordinated public debates/presentations on the Law, that would bring additional clarity on its provisions.
• In the context of several contradictions at the level of European states regarding the constitutionality of provisions limiting the property right of certain creditors over their receivables, we recommend that the Government require the exposure of Constitutional court on the possibility of violating Article 46 of the Constitution “The right to private property and its protection” early on. More than once Moldova was drawn in costly disputes in international arbitration courts for violating the property right. We have a recent example when several shareholders from the banking sector have initiated a dispute against Moldova regarding the NBM decision to sell shares held for three months.
• Once the bail-in procedure is introduced, the correct information of the population correlated with the lack of an adequate system for bank deposits protection could make the deponents move their money from the domestic bank accounts to accounts in banks from more protected jurisdictions. Consequently, in the context of the recent developments in the banking sector a migration of the capital can aggravate the already fragile stability of the sector. We consider it is essential to maintain an adequate supervision by NBM, together with promoting policies in order to maintain a sufficient level of capital internally.
• If for natural persons the relationships with the banks are not mandatory (creating bank deposits is an optional action of each person, independently and on their own risk), then a large part of the companies, due to the specific of their activity are bound by law to conduct their activity running their money through commercial banks . Under these circumstances, all involved institutions (especially the NBM, NCFM, DGFBS, NCFS) should come up quickly with risk adequate protection solutions or clarifications if necessary.
This publication has been funded by the British Embassy in Chisinau, through the Good Governance Fund. The content of this publication is the sole responsibility of the author and does not necessarily reflect the views of the British Government.