ROUND TABLE AT THE BURSA NEWSPAPER The banking system and the sovereign debt crisis

• Gheorghe Piperea: Next year, we may have bankruptcies or bank nationalizations

Next year, we may see bankruptcies or bank nationalizations next year, given the messages sent by Governor Mugur Isărescu, as well as by the president Traian Băsescu, concerning the possible risk of parent banks withholding financing of their local subsidiaries, lawyer Gheorghe Piperea feels.

He said: "I think that in January or February next year, some touchy problems will occur in the banking sector, because it is the moment which both Mugur Isărescu, and president Băsescu grasped. I am expecting some very serious lender bankruptcies or nationalizations in Romania.

I don't know how Romania is going to nationalize a bank because it does not have the financial resources needed to do that."

There is a very clear consequence for Romania, which the president noticed: that banks which account for 38% of our entire banking system, will no longer be able to afford new financing from the parent banks, because they no longer have money nor the ability to borrow, according to Gheorghe Piperea. Under these circumstances, the solution for the local subsidiaries so they can continue lending, would be to attract deposits from the market, which are considered the bank's own funds once they are set up, he added.

Lawyer Gheorghe Piperea explained the reason why president Traian Băsescu had a blunt intervention criticizing the Austrian banks: "The Romanian state will have a major financing problem in 2012. The deficit is estimated to be somewhere between 10 and 20 billion Euros, which needs to be financed somehow. Before whining that the banks are leaving, because it was something to be expected, the Romanian government should think of far simpler solutions. The state needs to improve its tax collection. Another source of funding is the issuing of bonds denominated in lei to the population. Pension funds operating on the market could invest their money in those bonds".

He said that next year, the Government and the presidency will need some outlets for the situation which they managed during the crisis. Furthermore, someone needs to explain why in 2010 banks were supported to the detriment of the taxpayers, he added.

Lawyer Gheorghe Piperea said: "The government is blaming the banks, which, on the threshold of the greatest crisis, in 2012, are jumping ship. Banks aren't loved by anyone, everyone hates them. There will be a wave of populism in 2012 and this will result in banks going bankrupt, which aren't deserved by all the banks".

• "Not all the banks went wild"

He added that he doesn't to see bank defaults to happen, because not all of the lenders "went crazy": "It is something which is bothering me. I don't hate banks. I think that banks did more in Romania during the boom then some politicians did. They may have pushed things, but they jumpstarted Romania's economy. Billions of Euros entered Romania, the state made money by collecting VAT and other indirect taxes.

Not all the banks went wild. Without banks there is no corporate governance, there is no streamlining. It is the banks that warn people when they borrow money in a pointless and irrational manner. Of course, there are banks which are irresponsible themselves, but not all of them are like that. I would be very upset to see banks which don't deserve it be affected themselves, not necessarily by going bankrupt, but by this anger kicked up by politicians".

Still, lawyer Gheorghe Piperea added that bankruptcy may be a solution for some banks.

"Why do we always need to help the banking system, when we could instead help companies, which would create jobs?", he said.

Furthermore, out of the 41 of the Romanian banking system, only those banks that deserve it should lend and attract deposits, because there are many lenders which, either because of their management, or because of their parent bank, don't deserve being bailed out with our money, lawyer Gheorghe Piperea said.

He mentioned that banks depend on being able to convey and image of reliability, and he added that panic is an element which is unpredictable on one hand, and on the other hand, is very hard if not impossible to keep in check.

Lawyer Gheorghe Piperea said: "In Romania's recent history, it has been proven that banks depend on their ability to convey reliability, but in order to do so, one must have confidence in the market. In 2000, the National Investment Fund (FNI) and the Popular Bank had collapsed, and there were rumors that BCR may be having problems and people began standing in line to get their money out. Another time, there were rumors saying that CEC Bank had issues, and again, people went and stood in line to get their money out. The same happened in the case of Ţiriac Bank. It is worth mentioning that the interest rates were 200% at the time. People stood in line for one day, then for two days, and they saw that the banks were returning the money, because they were flooding the market with liquidity. After two days of withdrawals, people finally relaxed. Because in those cases banks had a capital of confidence to begin with, they were able to sell their image of reliability and they solved their problems".

He said that to a certain extent, banks support the infrastructure of the economy, but things can work out without them. Banks have payment systems, but those systems can be created by an authority, there is no need for a bank to exist in the circuit, he said.

As for the "bridge-bank", which can represent a solution for the potential issues of the banking system and which is still a draft project being discussed at the NBR, lawyer Gheorghe Piperea said that it will not happen quickly, as it requires funds and specific structures. In his opinion, the "bridge bank" needs to be created, even though it will create great tension in the market.