site.btaEU Banking Market Reform Particularly Relevant for Bulgaria, Think-Tank Says

On July 17, the European Commission presented a plan to develop the EU single market in banking, which is aimed to remove some of the national barriers to cross-border banking. The reform is intended to give lenders greater freedom to distribute resources among their subsidiaries, allow them to offer cross-border services more easily, and ensure that they face fewer national obstacles to cross-border banking while at the same time stronger depositor safeguards and crisis control mechanisms are in place, says Martin Makelov from the Institute for Market Economics (IME) in an analysis published on the IME website.

As a result, European banks are expected to be able to use their resources more effectively and businesses will have easier access to funding, Makelov notes. The reform will enable the banking sector to provide better support for necessary investments in strategic sectors such as artificial intelligence, defence, biotechnology and clean energy.

For Bulgaria, where the four largest banks by asset size – United Bulgarian Bank (UBB), DSK Bank, UniCredit Bulbank and Eurobank Bulgaria – are members of international banking groups, the main question is whether a greater freedom of capital movement and liquidity will be coupled with adequate risk sharing during crises. If the integration of resources outpaces the integration of safeguards, part of the resources of bank subsidiaries may be re-channelled to other markets, while crisis management and the costs of mitigating adverse consequences remain a responsibility of the host country, the analyst warns.

The EU banking market reform is particularly relevant for Bulgaria, Makelov says. Three of the top four banks in the country (UBB, UniCredit Bulbank and Eurobank) have owners in the euro area, and the European Central Bank oversees both the Bulgarian subsidiaries and the parent groups. Although oversight is integrated, the rules for maintaining capital and liquidity buffers remain at the level of individual national companies.

A future deeper integration of the EU banking market will have a direct impact on Bulgaria. More flexible movement of resources can facilitate and reduce the operating costs of the Bulgarian subsidiaries of international banks, which can benefit their clients. At the same time, however, there needs to be a common European mechanism for protection of deposits to avoid situations where the national deposit insurance fund alone covers the cost of possible financial crises affecting one or more banks.

The blueprint of the European Commission provides guidance for integrating the European banking market, but concrete legislative proposals are not expected until 2027. The sequence of the changes is crucial, the IME researcher says. The Commission has noted that separate, desultory changes will not be enough. A successful reform requires that the easier transfer of banking resources should come with a common system for deposit protection and responsibility sharing during a crisis, the analysis concludes.