Mutual savings banks may be headed for a fall

Have you by any chance forgotten about the people’s banks, the financing schemes they promoted and the thousands of people who lost their money? It may all come back to you shortly, under a different name: mutual savings banks.
After having been easily endorsed by the two Parliament chambers, the Law 122/1996 on the legal status of the employees’ mutual savings banks was promulgated last week. It is now set to be published in the Official Gazette. Nothing out of the ordinary so far. Only the new law prepares the grounds for the establishment of institutions similar to the former credit cooperatives-people’s banks, referring to the possibility of opening deposits and granting credits also to non-members: “the core activity of the mutual savings banks is the attraction of deposits, in the form of savings, and granting loans with interest…”
However, the law does not say who exactly shall control, authorise and monitor these banks.
After a bad experience with the people’s banks, the National Bank of Romania (NBR) yesterday took a public stand, saying that last year’s problems with the credit cooperatives-people’s banks (hundreds of thousands of people lost their money in the collapse of the Romanian People’s Bank alone) could very easily happen again, in case this law is published in the Official Gazette.
“If this law is actually published in the Official Gazette, it will turn the mutual savings banks into real, albeit smaller banks, allowing them to attract deposits from natural persons and even grant loans also to non-members. This means they will enter the scope of the NBR. However, they will be almost impossible to monitor, as there can be thousands of such institutions. At this moment, these mutual savings banks are not authorised by anyone, not to mention controlled. This could lead to a situation similar to the credit cooperatives-people’s banks, and we all know what happened there,” said Mihai Bogza, vice-governor of the National Bank of Romania.
According to Bogza, if the National Bank gets to monitor these banks, most of them will probably closed down, because “they are not likely to meet the new norms and prudential indicators which the central bank applies in its banking system monitoring policy.”
“Should two or three such mutual savings banks get into trouble, the situation would spread over the entire system. And we will have another credibility issue on our hands,” Bogza comments.
“The number of these banks is not known. There may be thousands. Almost every enterprise had such a mutual savings bank before (i.e. before the 1989 Revolution),” the NBR official concludes. oana.nuta@zf.ro