Confidence in the Romanian banks was shattered by the demise of Lehman Brothers
Romanian bankers were shocked by the chaos and the massive turmoil the United States was facing. Wall-Street’s severe bear market sent shock waves across the European markets including the Bucharest Stock Exchange. Romanians started to feel the pinch of the recession, although economists had assured the economic crisis will bypass the country.
In the local banking system, credit institutions are yet too small compared to United States’, and their luck was that the National Bank of Romania has restricted access to the toxic asset territory, which was considered to be the “playground” of the foreign bankers.
However, Romanians’ confidence in banks has faded after the world’s banking giants, Lehman Brothers, Fannie Mae and Freddie Mac went bankrupt.
As a result, consumers started to take out their money from their savings accounts in Romanian credit institutions.
Taken by surprise, and lacking the required liquidity, banks shifted focus to the central bank’ lending facility as a source for cash flow. In October 2008, NBR lent a record 49 billion lei (13.3 billion euros at a median exchange rate of 3.6827lei/euro) to banks.
Furthermore, as the world’s banking system became capital constrained, the parent banks reduced their funding to their Romanian subsidiaries or raised costs. Banks started to encourage saving among consumers by lifting interests rates at over 15% for deposits in local currency and at 7% for deposits in euro.
In the local banking system, credit institutions are yet too small compared to United States’, and their luck was that the National Bank of Romania has restricted access to the toxic asset territory, which was considered to be the “playground” of the foreign bankers.
However, Romanians’ confidence in banks has faded after the world’s banking giants, Lehman Brothers, Fannie Mae and Freddie Mac went bankrupt.
As a result, consumers started to take out their money from their savings accounts in Romanian credit institutions.
Taken by surprise, and lacking the required liquidity, banks shifted focus to the central bank’ lending facility as a source for cash flow. In October 2008, NBR lent a record 49 billion lei (13.3 billion euros at a median exchange rate of 3.6827lei/euro) to banks.
Furthermore, as the world’s banking system became capital constrained, the parent banks reduced their funding to their Romanian subsidiaries or raised costs. Banks started to encourage saving among consumers by lifting interests rates at over 15% for deposits in local currency and at 7% for deposits in euro.