The Politics of Banking in Romania - Soft Loans, Looting

Lucian Cernat 1
The Politics of Banking in Romania:

Soft Loans, Looting and Cardboard
Billionaires
IN THE LAST TWELVE YEARS, ROMANIA HAS BEEN ENGAGED IN A MAJOR

systemic transformation, from a communist system towards a market
economy. After the demise of communism and the overthrow of a
brutal dictatorship, most analysts expected a rapid improvement in
the economic and political situation in the country. While a demo-
cracy has been established fairly rapidly, the economic evolution has
been far below expectations. Although the economic evolution was
uneven across the entire Central and East European region, some
countries were more successful than others in transforming their
economy without a persistent decline in output. For Romania the
initial years of transition have triggered a significant decline in eco-
nomic growth, followed by a slow and only partial recovery. After
more than a decade of transition, Romania has yet to reach the 1991
GDP level.
There have been numerous attempts to explain the variance
in the economic performance of Central and East European coun-
tries (CEECs) during the last decade. Some theories emphasize the
major institutional changes involved during the transformation
from socialism to capitalism and the disorganization that followed
the sudden end of central planning. ‘Rebuilding the ship at sea’2
therefore had severe economic implications for the CEECs. Other
theories have underlined more specifically the lack of openness
1
The views expressed in this article are those of the author and do not neces-
sarily reflect the views of the United Nations or its Member States. The author is grate-
ful to Peter Humphreys, Yoram Gorlizki and Michael Moran for their comments and
discussions on earlier versions of this article, and to an anonymous referee for very
helpful comments and suggestions.
2
J. Elster, C. Offe and U. K. Preuss, Institutional Design in Post-Communist Societies:
Rebuilding the Ship at Sea, Cambridge, Cambridge University Press, 1998.
© Government and Opposition Ltd 2004

Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main
Street, Malden, MA 02148, USA.
452 GOVERNMENT AND OPPOSITION
and slow economic integration through trade and FDI as growth-

inhibiting factors.3
One key issue that has been singled out by a number of studies as
accountable for this output collapse is the credit market.4 Such analy-
ses consider that the financial and banking system is one of the
key underdeveloped institutions in Eastern European economies. In
their view, economic growth may be adversely affected by under-
developed credit markets.5 Any attempts at macroeconomic stabi-
lization were therefore doomed to fail due to an underlying
industrial and banking structure that was reluctant to channel in-
vestment into productive activities. Furthermore, these studies have
established a direct link between output collapse after the imple-
mentation of the recent economic transformation programmes in
east Central Europe and the role played by the credit market.
The remainder of this paper will build on this argument and focus
on the case of state–banking relations in post-communist Romania.
In the following sections attention is focused on the features of the
emerging Romanian banking system, its failures and their determi-
nants. The analysis will address issues such as the establishment of
business relationships between bankers and politicians and the
role played by political influences in the application of sanctions by
banking regulators. As the case studies will show, the reluctance of
incumbent politicians (regardless of their political orientation) to
apply sanctions against banks that are in trouble until the last pos-
sible moment encourages excessive risk-taking when banks first
encounter financial difficulties, and asset-stripping when the insiders
realize that a bank’s continued viability is in jeopardy. The article
3
L. Cernat, and R. Vranceanu, ‘Globalization and Development: New Evidence
from Eastern Europe’, Comparative Economic Studies, 44: 4 (2002), pp. 119–36.
4
C. Poirot, ‘Macroeconomic Stabilization in an Uncertain Environment: the Case
of Romania’, Journal of Economic Issues, 30: 4 (1996), pp. 1057–75; G. A. Calvo and F.
Coricelli, ‘Output Collapse in Eastern Europe: The Role of Credit’, IMF Staff Papers,
40: 1 (1992).
5
According to the World Bank, there have only been three examples of unqual-
ified bank restructuring success among CEECs: Estonia, Latvia and Slovenia. See P.
Siegelbaum, ‘Financial Sector Reform in the Transition Economies: What Have We
Learned; What Are the Next Steps?’, speech delivered at the 2nd Annual Conference
on Bank Credit in Central and Eastern Europe, sponsored by the International
Industry Conferences On Bank Credit Risk, IBC UK Conferences Limited, Prague,
2 September 1997.

THE POLITICS OF BANKING IN ROMANIA 453
concludes that the prevalence of systemic corruption in state–bank

relations presents an entirely separate set of problems of legal and
regulatory compliance by banks in post-communist Romania. When
looking at the functioning of the Romanian financial system in more
detail, as evidenced by the cases described below, insider-trading, self-
loans, and blunt theft appear more as systemic features rather than
isolated incidents. These flaws were either politically driven or simply
a result of the weak regulatory capacity of the state (as the owner of
the banks) and lax monitoring from the central bank, as the central
authority entrusted with the responsibility to maintain a well func-
tioning banking system.
BANKING IN TRANSITION: THE ROMANIAN CASE
The communist system in Romania under the Ceausescu regime con-

centrated at the level of central bureaucracy the decision-making
related to all important aspects of the economy, in a typical totali-
tarian, dynastic fashion. All marketing functions such as links with
suppliers or buyers, production plans (what, how much, when to
produce), pricing, wages and even labour force distribution within
enterprises were directed by the communist party and its leaders. As
one could expect, the external trade was also centralized and mono-
polized by a national trading company for each significant economic
branch. These companies were assimilated with the elitist central
bureaucracy rather than the real economy. Furthermore all capital
inflows or outflows were also centralized, as well as decision-making
relating to profit margins, investments, mergers or acquisitions. For
the central bureaucracy to effectively control enterprises it was con-
sidered essential that their liquidities be concentrated in banks, the
decision about their use being highly politicized.
Given this situation, the starting point of transition in Romania
was a financial sector based on a one-tier banking system owned and
directly controlled by the state. These banks provided resources, in
the form of credits, to state-owned enterprises, enjoying the explicit
or implicit guarantee of the state. They had little or no risk-
management skills and produced accounts under an accounting
system designed to facilitate production planning, as opposed to
illuminating their financial condition. As a result, the socialist banks,
although closely controlled politically, were subject to little or no
regulatory supervision. Their role in the economy was to provide

funding, as directed, for the central economic plan. This starting
point was also characterized by the absence of a market-oriented
legal infrastructure.
The final objective of transition was to create a financial system
that would be familiar to a European or an American banker. Such
a system is based mainly on private banks, offering a wide range of
sophisticated financial products, supported by strong collateral,
bankruptcy and other laws, publishing accounts on a transparent
basis acceptable under international prudential standards enforced
by an effective regulatory system administered by an independent
central bank. The terminal point also involves relatively sophisticated
and well-regulated securities markets, dealing in government paper
and private debt and equity issues, as well as some significant level of
specialized finance, private insurance and pension activity.
For this reason, in addition to the transformation of bank–
enterprise relations, an equally important element is the restructur-
ing of bank–government relations, as the state ends its reliance on
central planning and commercial banks move from being instru-
ments of the state to independent entities operating in a market
economy. This explicitly means that the state gives up its dominant
position as the owner of commercial banks and fulfils its role by means
of prudent regulation and supervision, mainly through the central
bank. Yet, although state ownership of banks has been diminishing,
the state still has a major role to play in the successful transforma-
tion of the financial sector. Typical government actions may include
rehabilitation measures, the restructuring of bank liabilities by the
recapitalization of banks with public funds and equity, and the
restructuring of banks’ assets by various methods, which may include
debt-for-equity swaps, a government restructuring institution, gov-
ernment bond-for-bank loans, swaps, etc.
Since the collapse of communism, Romania has faced a challenge
to transform its financial system and to adopt the characteristics of a
capitalist banking system described above. Many of the features of a
state-run banking system were more resilient than initially thought,
in particular the close networks of politically-controlled relationships
between state-owned enterprises (SOEs) and state-owned banks. The
industrial elite expected the old faceless, depersonalized communist
bankers to remain in the same subordinate position and to acquiesce
in the running of certain industrial policy. They expected the Roman-
ian Bank for Development, for instance, to give them long-term loans
for investing in new capacities or new technologies, or
the Romanian Bank for External Trade to give them full support in
foreign trade, as was the case before 1989. After privatization these
politically controlled networks involved not only SOEs and banks but
also newly privatized firms owned by the political clientele of the
ruling party.
To eliminate the centralized system, one of the most important
economic reforms introduced after 1989 was the decentralization of
the banking system. Before 1989, the Romanian banking system was
quite centralized, with banks acting as spin-offs of the central bank,
and being specialized by sector. Romania maintained a highly con-
centrated banking system in the early years of transition, having the
smallest number of banks across the region. The number of private
banks was equally low compared to other transition economies, as
was their share in total bank assets. The Romanian market continued
to remain oligopolistic, banking being concentrated in the hands of
the three biggest state-owned banks, whose managers maintained
close links with the ruling government. These three banks accounted
for 42.8 per cent of total market share in 2002, compared with 75
per cent in 1998.6 Not surprisingly, given the general reluctance of
the government to encourage foreign investment in general, foreign
participation in the banking sector remained limited and confined
to foreign bank subsidiaries. The importance of foreign penetration
in the banking sector is well evidenced in Demirgüç-Kunt et al., who
show that higher foreign-bank penetration enhances economic
growth by boosting domestic banking efficiency.7 However, state-
owned banks in Romania were not included in the privatization pro-
gramme until recently, and therefore the benefits of foreign bank
penetration were not attained.
The number of banks in Romania remained relatively low com-
pared to the number in Russia for instance, or even that in Poland
or Bulgaria, not only in the early stages of transition but also ten years
later. Thus, in 2002 there were 54 banks operating in Romania, out
6
Economist Intelligence Unit, Country Forecast: Romania, London, Economist
Intelligence Unit, December 2002.
7
A. Demirgüç-Kunt, R. Levine and H. G. Min, ‘Opening to Foreign Banks: Issues
of Stability, Efficiency, and Growth’, Proceedings Bank of Korea Conference on the Implica-
tions of Globalization of World Financial Markets, Seoul, Bank of Korea, 1998, pp. 83–105.

of which 23 were domestic private banks, seven were state-owned and

24 were subsidiaries or branches of foreign parent banks.8 The new
domestic private banks continued to remain small and fragile, as
evidenced by the high incidence of licences withdrawn and bank-
ruptcies among them, compared to state-owned banks or foreign
subsidiaries.
Another important feature of the Romanian banking system is that
although banks are permitted to function as universal banks, they
generally avoid investment in enterprise equity. This stems largely
from the reluctance of banks to own large stakes in SOEs whose
future situation and economic performance are highly uncertain. A
second reason is the conflict of interests between the banking and
industrial elite. In fact, a great deal of the problems encountered by
the Romanian banking system has to do with the interaction between
the ruling politicians and the banking elite. The next section
explores in greater detail these interactions between two groups.
THE MAIN SYSTEMIC PROBLEMS
The banking system that emerged in Romania in the early years of

transition was, as in many other cases in Eastern Europe, an extreme
example of government-controlled banking. Gradually however, and
at different paces across the regions, the breaking up of the mono-
or state bank system resulted in the creation of a commercial banking
system blended with a hint of investment banking. In the emerging
transition, financial and banking systems faced several difficulties,
as a result of two types of problems. The first occurred as a result of
either too many (for a banker) or too few (for regulators) state inter-
ventions. The most pervasive problems that hampered the ability of
the financial and banking sector to act as a catalyst for economic
growth were the soft budget constraints and financial repression. The
second type of problem is related to the weak regulatory capacity and
can generally be described as bank fraud.
8
National Bank of Romania, Comunicate de Presa, Bucharest, National Bank of
Romania, 2001.

Financial Repression
A systemic characteristic that may arise in state-controlled banking

systems, such as that in Romania, is financial repression. Policies of
low administered interest rates have often been labelled ‘financial
repression’ – the suppression of market-based supply/demand mech-
anisms for credit and finance.9 In state-controlled credit markets,
interest rates are artificially low and even negative in an inflationary
environment, creating a series of shortcomings. On the one hand,
financial repression is a reference to a specific set of policies involv-
ing a variety of controls on the activities of the main financial insti-
tutions in an economy. In simple terms, financial repression means
heavy regulatory pressure to deal with issues that could be left to
market forces. On the other hand, as will become evident from
the subsequent discussion, financial repression does not ensure the
minimum regulatory framework, such as contract enforcement,
clear property rights, efficient banking supervision, transparent
accounting, etc. This in turn discourages savings both by individuals
and by companies. One consequence of financial repression is a low
level of financial intermediation and a high reliance on self-finance.
Total banking sector assets in Romania amounted to just under 30
per cent of projected GDP in 2002, compared with an East European
average of 70 per cent and an average in the euro zone of 260 per
cent.10
Figure 1 illustrates one major aspect of financial repression: low
administered interest rates. As can be seen, with the exception of
1995 and 1996 where nominal interest rates were above the inflation
rate (positive real interest rate), throughout the rest of the 1991–98
period (where data are available for bank nominal interest rates),
real interest rates were negative, favouring debtors and decapitaliz-
ing banks and depositors. Although several factors might contribute
to this situation, one can reasonably assume that state-owned banks
9
For a good discussion on the debate about financial repression, as well as a com-
parative discussion of financial systems, see for instance R. I. McKinnon, Money and
Capital in Economic Development, Washington, Brookings Institution, 1973; J. Fry, Money,
Interest and Banking in Economic Development, Baltimore, Johns Hopkins University Press,
1988; S. Haggard, C. H. Lee and S. Maxfield (eds), The Politics of Finance in Developing
Countries, Ithaca, NY, Cornell University Press, 1993.
10
Economist Intelligence Unit, Country Forecast, op. cit., p. 25.

Figure 1
Financial Repression in Romania: Negative Real Interest Rates
Inflation and bank nominal inteest rates

300
Inflation
250
Nominal interest rate
200
percentage
150
100
50
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Source: National Bank of Romania, various Annual Statistical Reports.
were ‘forced’ to grant loans to SOEs at lower interest rates than a

free-market based banking system would sustain.11
As saving is depressed, investment is constrained by an insufficient
supply of credit. In such circumstances, since repressed financial
regimes are characterized by direct government control of credit, it
is quite likely that resources are allocated on the basis of political
rather than efficiency considerations. The financial repression argu-
ment concludes that growth is retarded because of both the low
quantity and low quality of investment.
Certain legacies of the socialist financial system suggest this
possibility. First, the banking sector remained among the more state-
controlled parts of these economies, with few governments having
taken steps towards their full privatization. Thus, the line between
‘public’ and ‘private’ finance often remains unclear, with govern-
ments prompting banks to act as quasi-fiscal agents of the state
through interest-rate controls or, more directly, through directed
credit programmes. Moreover, as shown in the next section, finan-
cial repression may be used as a means of maintaining a ‘soft’
banking system that essentially absorbs enterprise losses in the short
run.
11
A closer look at monthly nominal interest rate data revealed a large fluctuation
from one month to another, with interest spreads as high as 40 per cent.

The question is whether such low interest rates inherently dampen

the supply of capital and distort its allocation by politically motivated
loans, or whether they create ‘opportunities’ that induce economi-
cally efficient actions those private markets would not undertake
because of a divergence between private and social returns. Based on
this distinction, Hellman et al. differentiate two types of preferential
credit schemes.12 One, discussed above, is ‘financial repression’, with
its transfers to government or political supporters. They differentiate
that from ‘financial restraint’, which generates profit opportunities
for banks and businesses. In financial repression, government actors
extract rents from the private sector and re-allocate them to them-
selves or their supporters. In contrast, financial restraint can generate
wealth-creating opportunities that drive real growth.13 Thus, it is pos-
sible to refer to ‘wealth-creating’ rents, and differentiate them from
‘transfer rents’. Hellman et al. argue, however, that what is impor-
tant is not simply the policy of administratively lowered interest rates,
but also whether the rents are wealth-creating or simply transfers.
The Soft Budget Constraints
Stemming partly from the existence of financial repression, a related

problem affecting the establishment of an efficient banking system
capable of promoting sustainable economic growth is the persistence
of soft budget constraints.14
Several recent studies have stressed that the state continues to
12
T. Hellman, K. Murdock and J. Stiglitz, ‘Financial Restraint: Towards A New Par-
adigm’, paper written for the World Bank EDI Workshop on the Roles of Government
in East Asian Economies: Rent Creation, Coordination and Institutional Development,
Stanford University, 10–11 February 1995.
13
Hellman et al. ‘Financial Restraint’, op. cit., stress that, for financial restraint
policies to create such positive effects, a number of conditions must be present, includ-
ing a stable, low-inflation macroeconomic environment, non-excessive taxation of the
financial sector, and positive real interest rates.
14
There is a large volume of theoretical and empirical literature on identifying
the causes and channels of soft budgets. The theoretical literature is summarized in
J. Kornai, ‘The Place of the Soft Budget Constraint Syndrome in Economic Theory’,
Journal of Comparative Economics, 26: 1 (1998), pp. 11–17. Empirical studies include J.
P. Bonin and M. E. Schaffer, ‘Banks, Firms, Bad Debts and Bankruptcy in Hungary
1991–94’, Centre for Economic Performance Discussion Paper 234, London, London

dominate the banking sector of CEECs, both in terms of ownership

and macroeconomic influence but also at a microeconomic level in
credit decisions.15 This situation becomes obvious when looking at
the proportion of non-performing loans. As noted before, one char-
acteristic of socialist banking was the irrelevance of credit risk assess-
ment by banks for the simple reason that central planning managed
to compensate one way or another through state intervention.
Assuming that even during transition most non-performing loans are
made as a result of state intervention in the banking system, data on
non-performing loans are a good indicator of distortions introduced
by political interference in banking operations. Table 1 shows the
evolution of non-performing loans, in terms of total loans (i.e. as a
share of total loans) over a four-year period (1994–97), in selected
Eastern European countries.
As evidenced in Table 1 above, with the exception of Romania, all
Table 1
Non-Performing Loans Across CEECs (as Percentage of Total Loans)
Country 1994 1995 1996 1997
Bulgaria 7 13 15 13
Croatia 12 13 11 10
Czech Republic 34 33 30 29
Hungary 18 10 7 4
Poland 29 21 13 10
Romania 19 38 48 57
Slovakia 30 41 32 33
Slovenia 22 13 14 12
Source: Transition Report 1998. Financial Sector in Transition, London,

European Bank for Reconstruction and Development, 1998, p. 133.
School of Economics, 1995, on Hungary; S. Claessens and P. R. Kyle, Jr., ‘State Enter-
prise Performance and Soft Budget Constraints: the Case of Bulgaria’, Economics of
Transition, 5: 2, pp. 305–22, on Bulgaria; E. Perotti and O. Carare, ‘The Evolution of
Bank Credit Quality in Transition: Theory and Evidence from Romania’, CERT
Discussion Paper, 2, Edinburgh, Centre for Economic Reform and Transformation,
1997, on Romania.
15
M. S. Borish, W. Ding and M. Noël, On the Road to EU Accession. Financial Sector
Development in Central Europe, Washington, DC, World Bank, 1996; R. W. Anderson and
C. Kegels, Transitional Banking: Financial Development of Central and Eastern Europe,
Oxford, Clarendon Press, 1998.

of the other countries in the sample have more or less constant or

declining values of non-performing loans. Romania remains an atyp-
ical case not only because the share of non-performing loans has
steadily increased over time, but also because the values are relatively
higher than those of most other countries throughout the period
examined (with the exception of the beginning of the period).
Assuming that, even during transition, most non-performing loans
are granted as a result of state intervention in the banking system,
data on non-performing loans are a good indicator of distortions
introduced by political interference in banking operations. Although
there may be other causes for this high share of non-performing
loans, these data provide information on the state–industry–finance
relationships in a number of ways. Firstly, from the bank’s perspec-
tive, loans become non-performing because the beneficiary firms are
unable to sustain the level of economic activity and profitability
necessary to pay back the loan, plus the interest. From a beneficiary
firm’s perspective, the explanation for a non-performing loan situa-
tion is most often attributed to an unexpected economic downturn
or excessive lending conditions imposed by the bank.
In the case of Romania, the experience of state intervention in
the credit market and the associated number of non-performing
loans in the last decade has shown that the problem was not one
of a temporary failure that reduced the level of economic activity.
Instead, these causes were systemic and had to do with ways in which
credit decisions were made. This is a crucial element in understand-
ing the link between institution, policies and economic outcome.
State-finance institutional links similar to those in the Asian ‘devel-
opmental capitalist’ system, based on heavy state intervention, pro-
duced the opposite outcome in Romania. The best explanation for
this is probably that offered by Alice Amsden, when she argues that
what matters is not the degree of state intervention but rather the
type of the interventionist policy.16 In the Asian example, state inter-
vention policies offering subsidized credit to networked enterprises
were conditional upon the strong economic performance
of these enterprises, measured most often either in terms of export
performance or successful innovative activities and new product
development. Unlike this developmental strategy based on ‘national
16
A. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, New York,
Oxford University Press, 1989.

champions’, in Romania political pressure was exercised to give loans

either to loss-making SOEs or to politically-connected individuals.
In any case there was little or no ‘good-performance’ conditionality
attached to the loan, and no monitoring activity on enterprise
creditworthiness. Therefore, under such conditions, state interven-
tionism had little to do with Asian developmentalism. Although the
continuation of hierarchically organized government intervention in
the form of low interest rates and state-backed credit was justified by
the belief that it would result in a smoother and less painful transi-
tion, in reality it encouraged the emergence of purely predatory
and rent-seeking behaviours by the actors involved: bank managers,
ruling politicians and their clientele.
While these patterns of state–bank relations are found in all tran-
sition economies the transition process has certain unique cir-
cumstances in each of the CEECs. The content, sources and uses of
banking regulations are all very different, as are the observed behav-
iour patterns of bankers, industry and bank regulators. The dispar-
ity between Romania and other countries continued to widen
throughout most of the 1990s. For instance, in 1996–97, the share of
non-performing loans in Romania was as high as ten times that in
Hungary. This is perhaps explained by the political cycle. 1996 was
an electoral year and the new reformist government that took office
in 1997 had an impact on the magnitude of non-performing loans.
Many institutional and bureaucratic changes introduced by the new
government did not take immediate effect in 1997 and thus the
legacy of the Iliescu government persisted until 1998. However, the
share of non-performing loans had been reduced from 71.7 per cent
at the end of 1998 to 2.8 per cent at the end of 2001.17 Yet, despite
these impressive advances, the financial system remains highly
underdeveloped and was unable to provide effective intermedia-
tion between savers and investors, bank lending remaining at 10 per
cent of GDP in 2002.18
Self-Lending
17
ETEBA, Romania: Weekly Bulletin, Bucharest, ETEBA Romania, 16–22 March
2002, p. 1.
18
Economist Intelligence Unit, Country Forecast, op. cit.

Self-lending represents another typical problem of the Romanian

banking system. Self-lending occurs whenever the bank provides
loans to bank managers and owners or to entities associated with
them. Under the Romanian Banking Statute adopted in the early
1990s during the leftist coalition, lending by a bank to a founding
member was limited to 20 per cent of the bank’s total loans. Such
lending is closely regulated in most countries but in Romania
banking regulations were frequently evaded, bypassed, or, for po-
litically connected individuals, waived. This situation continued
throughout the 1990s, even during the 1996–2000 centre-right coali-
tion government.
Why was self-lending so resilient and to what extent did such detri-
mental self-lending occur in Romania? Apart from exceeding the
legal threshold, what self-lending most often does is to substitute free-
market lending conditions with over-optimism regarding the prof-
itability of the loan, and looser conditionality and bank scrutiny. The
likely result is that the risk for non-performing loans is much higher
under such conditions. If the owner of the bank is the state, as in the
case of Romania, self-lending is even more detrimental since it is
expected that any situation of insolvency or illiquidity resulting
from excessive and soft self-lending will be bailed out by the state.
The financial effect of self-lending was that commercial banks trans-
formed good liabilities (deposits) into bad assets (loans to their
owners). Indeed, in many cases of bank failures, the underlying
causes have been political interference in bank credit decisions
and lax enforcement of prudential regulations designed to restrain
self-lending or recklessness. Such systematic political intervention
declined significantly after 1996, during the various centre-right
coalition governments, but did not disappear.
Furthermore, the intervention of the supervising authorities
(the central bank in particular) becomes so crucial to avoid that such
self-lending situations become widespread. When the alternative is
to declare a large loan to the bank’s owners, loan valuation can be
deliberately inaccurate, and supervisors are hard-pressed to know
with confidence where to draw the line between legal and illegal self-
lending. The supervisor’s problem is even worse if the bank insiders
have abandoned any attempt to maximize the bank’s value, and have
started looting its resources. Concealment will then be the main goal
of the bank’s relation with the supervisory authorities. The universal
banking system may have contributed to the proliferation of self-
lending, since banks are allowed to engage in a whole range of other

financial operations, apart from lending, which makes it more diffi-
cult to detect a transfer of funds towards the owners.
CASE STUDIES
The following section provides a more in-depth analysis of these dis-

functionalities within state–banking–industry relations, through a
series of case studies of bank crises. In the last ten years, the Roman-
ian banking system has been in a continuous endemic crisis, dis-
playing a recurrent pattern of distress, with insolvency and illiquidity
as constant symptoms. In the following case studies, it will be shown
that, given this pervasive government intervention, corruption and
clientelistic ties, the Romanian banking system was a major contrib-
utor to the constant economic decline in the last decade.
When looking at the functioning of the Romanian financial system
in more detail, the predominant features are insider trading, self-
loans, and straightforward theft, as evidenced by the numerous cases
exposed below. These flaws were either politically driven or simply
a result of the weak regulatory capacity of the state (as the owner of
the banks) and lax monitoring by the central bank as the central
authority entrusted with the responsibility of maintaining a well-
functioning banking system.
Banca Agricola: Soft Loans and Looting
Apart from soft loans, a distinct mechanism that contributed to the

anti-developmental role of the banking system in Romania is what
has been generally described as ‘looting’.19 In a few words, looting is
a procedure by which financial enterprises go bankrupt for profit.
Looting is a move that takes advantage of the time elapsed between
receipt of deposit and failure, by allowing bank managers to use the
funds for their own interests. Looting would be, for instance, a self-
loan followed by a purchase and sale from the bank of an asset at dis-
torted prices, buying assets from a straw company at inflated prices
19
G. Akerlof and P. Romer, ‘Looting: the Economic Underworld of Bankruptcy
for Profit’, Brookings Papers on Economic Activity, 2 (1993), pp. 1–73.

or selling assets at major discounts, or making concessional loans to

owners. The management will pocket the price difference without
any cost. Funds can also be extracted by owners paying themselves
large dividends or high salaries, or by the firm granting loans or
investments to straw companies set up by the owners. Looting is more
likely where there is poor accounting, lax regulation and low penal-
ties for abuse; the same weaknesses that also make asset stripping pos-
sible. Another serious problem, especially for a transition economy
like Romania, is that looting diverts credit from more productive
firms, choking off new entrants and slowing economic growth.
A case where looting was very significant involved Banca Agricola.
Banca Agricola was Romania’s fourth-largest bank, with 5.7 per cent
of total banking assets in 2001. In 1997, the bank accounted for more
than 20 per cent of total credits granted at national level and more
than 90 per cent of credits granted to the agricultural sector.20
Despite its important role in the economy, the policies pursued over
the years by successive governments have jeopardized its position.
According to bank officials, there have been many instances when
senior state officials have put pressure on the bank to grant loans to
loss-making state enterprises. As a result of these bad loans accumu-
lated during the various leftist governments of the PDSR-led (Par-
tidul Democratiei Sociale din Romania) regime, the bank registered
huge losses in the last three months of 1996, just before the national
elections.21 Faced with such an explosive situation, the government
agreed to guarantee the loans given to SOEs but even in those cases,
the state was unable to meet its commitments. The problem was
carried over after the elections, to the new centre-right wing coali-
tion government. In mid-1997, the CDR (Conventia Democratica
din Romania) leaders decided, through Ordinance no. 43, to cover
all losses of Banca Agricola that were generated by non-recovered
loans to loss-making SOEs accumulated during the various PDSR-led
governments. Even that ordinance however was implemented only
months later, during which time the losses of Banca Agricola
increased by more than 30 per cent.
This situation became so endemic that the bank ran short of liqu-
idities and was forced to stop payments to its private clients. Obvi-
20
‘Stiri politice’, Ziarul Expres, 17 September 1997. Available online at
http://www.Expres.ro/arhive.
21
Ibid., 29 July 1996.

ously, such a bad sign, fuelled by various rumours about the overall
financial situation of the bank, produced widespread panic among
its clients, with everyone rushing to withdraw their money from both
current and savings accounts. This herd behaviour only aggravated
the situation in the bank, but as Romania had witnessed several spec-
tacular crashes of banks and other financial institutions, this attitude
was entirely justified.
Faced with the possibility that the bank would collapse under the
pressure of a large majority of clients wanting to withdraw their
deposits, the government had to bail the bank out. For this purpose,
the Ministry of Finance issued a special series of government bonds
that were supposed to temper the panic and restore the population’s
confidence in the solvency and liquidity of Banca Agricola. Further-
more, the Ministry of Finance with the assistance of the National
Bank tried to step in to recover some of the bad loans from SOEs
that had defaulted. Widespread deficiencies in the legal infrastruc-
ture for banking, particularly in the laws governing collateral and
bankruptcy, meant that the bank could reliably look to the courts to
recover loan losses.
An interesting development occurred in the case of Banca
Agricola. As in other transition countries, bank regulators tried to
compensate these institutional deficiencies by other rules like the
‘one bank, one account’ rule.22 Thus, in the absence of efficient
legal enforcement, banks should be able to de facto freeze their cus-
tomers’ accounts in case of failure to repay a loan. However, although
this was the general rule (as established by Governmental Decision
no. 83/1993), which should have enabled Banca Agricola to at least
partially recover its losses from the existing liquidities of bad debtors,
other decisions of the Vacaroiu government created some loopholes
in this general principle. For instance, as various business associa-
tions claimed that this strict regulatory framework was a barrier for
their activities, and sought to introduce some competition among
banks, one year later Decision no. 270/1994, and the subsequent
guidelines for its application, allowed companies that were unable to
obtain credit for export or production activities from their own bank,
22
This rule stipulated that a company was allowed to keep all its accounts with one
bank only. This regulation was supposed to provide banks with leverage on those com-
panies inclined to avoid payment of their loans by allowing the bank to freeze all the
other accounts held by that company.

to obtain credit from another bank, after obtaining special per-

mission from the Ministry of Finance. Although this was certainly pos-
itive change in terms of deregulation and competition, certain
negative effects emerged with regard to bankruptcy. Apart from red
tape, clientelism and more room for political intervention from the
Ministry of Finance, this new regulation also seriously weakened bank
leverage over bad debtors. Unlike the previous situation, now banks
were unable to freeze immediately the accounts of their defaulting
clients. This was the case of some of the debtors who declared default
on Banca Agricola’s loans but had certain liquidities with other
banks. Companies that obtained such waivers from Governmental
Decision no. 83/1993 were subsequently unable or sometimes unwill-
ing to pay back the loans contracted. With an
inefficient, corrupt, lengthy and costly judicial system, crediting
banks were reluctant to enter into litigation in order to obtain the
liquidities from other bank accounts of the debtor.
Aware that its Decision no. 270/1994 generated perverse incen-
tives for some firms instead of improving their competitiveness, the
Ministry of Finance decided to redress the situation and enacted
Urgency Ordinance no. 43/1997, which stipulated that any company
that refused to pay back its debts while having available liquidities at
other banks should have these liquidities frozen and used to cover
the debts. Some debtors decided to organize themselves and attack
this piece of legislation in court. The Constitutional Court ruled in
their favour, considering this state action as an infringement of prop-
erty rights by the state.23 After a lengthy series of trials, in 1999, the
losses at Banca Agricola that had to be covered by the government
amounted to 10,000 billion lei, or in other words around 10 per cent
of the state budget.
How was this situation possible? Why did the central bank, which
is the key institution in charge of monitoring the efficient function-
ing of the banking system, allow such a disastrous situation to become
widespread across the state-owned banking sector? Are all of the
answers to be found in the irresponsible and predatory behaviour of
the political class? In fact, the greed of politicians and their bad
judgements offer only half of the answers. The other half lies in the
greed of bank managers. In fact, the two are closely linked. Firstly,
23
For a typical example of this situation, see for instance the Romanian Constitu-
tional Court’s Decision no. 101, Bucharest, Monitorul Oficial, 9 July 1998.

all managers of state-owned banks were either the same old com-
munist bureaucrats or fresh political appointees, not necessarily with
vast experience in the banking sector. Secondly, not all frauds
and bad loans were triggered by political interference. Saying yes
whenever required by politicians created a mutual interdependence
between bankers and politicians that gave bank managers full immu-
nity from legal or audit control. Consequently, bank managers had
much room for all sorts of financial tricks.
One such example occurred at Banca Agricola when the bank
decided to grant a significant loan to an obscure company, Prefabri-
cate Vest, who needed the loan to finalize the acquisition of another
company, Muntenia, which was sold in the process of privatization.
The collateral for the loan was formed from shares in the company
to be acquired. However, instead of receiving the collateral in
exchange for the initial loan, Banca Agricola decided that it should
buy these shares. The price of the shares acquired from the new
owner, Prefabricate Vest, was several times higher than the price ini-
tially paid by Prefabricate to the State Ownership Fund (SOF), the
leading agency in charge of privatization. Following the purchase of
these shares, Banca Agricola became a major shareholder, owning
around 20 per cent of Muntenia. The sequence of bad deals did not
stop here. As a major shareholder, Banca Agricola agreed that Pre-
fabricate would increase its participation in Muntenia with assets
worth around 50 billion lei (around two million US dollars). As a
result of this new infusion of capital, Banca Agricola’s share in Munte-
nia decreased from 20 per cent to around 2.5 per cent. This in itself
does not appear significant, but a closer look at the assets bought by
Prefabricate has shown that in fact the assets worth 50 billion lei con-
sisted of only a few software programs. All of these illegalities were
in fact designed to ensure that Prefabricate acquired Muntenia with
money from Banca Agricola, without any further financial obligation
vis-à-vis the bank.24
Overall, all the illegal financial practices at Banca Agricola
amounted to around one billion US dollars.25 In an attempt to avoid
24
The information on Banca Agricola is based on several press reports and
confidential interviews with experts from the Governmental Accounting Office,
Bucharest, Spring 2001.

the bankruptcy of the bank these losses were covered with public
funds. This set a negative precedent, which was followed in many
other cases. It is hard to believe that such illegal practices could be
carried out in the absence of some form of clientelism and political
interference. Further evidence supporting such conclusions can be
found in the widespread deficiencies in the legal infrastructure gov-
erning bank frauds and the lax attitude vis-à-vis those involved in
these alleged illegalities.
BANCOREX: How to Create ‘Cardboard Billionaires’
Prior to 1990, BANCOREX was the only Romanian bank that

specialized in foreign trade and financial transactions. As such,
BANCOREX was in a privileged position in the Romanian banking
system, having at its disposal the best employees, large amounts of
foreign currency reserves and a monopoly position as intermediary
between the economic transactions of Romanian companies and the
external world. Yet, instead of taking advantage of this promising
potential, BANCOREX had, over the years, become a pivotal player
in several major financial frauds and irregularities, and the main
source of soft loans that led eventually to its bankruptcy.
Several reports of the National Audit Court showed that BAN-
COREX had allegedly taken over most of the national reserve of hard
currency from the central bank, the National Bank of Romania
(NBR), and made it available to the political clientele of the FSN
(Frontul Salvarii Nationale) and later FDSN (Frontul Democratiei
Sociale din Romania), the leading party of the ruling coalition at that
time.26 According to these reports, BANCOREX became entrusted
with more than two billion US dollars. The reports were only made
public after 1996 when the change in power allowed the Court to
25
For further details on the overall amount covered by public funds in the Banca
Agricola case, see the special report on bank frauds in Cotidianul, Bucharest, 6 April
2000 and Jurnalul National, Bucharest, 24 October 2000.
26
Petre Roman and Ion Iliescu were clearly rivals for power within the National
Salvation Front; furthermore, they held divergent views of the best way forward in
reforming the economy. As a result, it was not long before the party split into two
warring camps led by the two former political allies. Eventually these two wings of the
party evolved into separate parties. Ion Iliescu remained at the top of the Party of

carry out a proper investigation into the matter.

These reports also identified a significant number of soft loans,
issues that had also been revealed in various official and media
reports. In fact the number of soft loans, bank frauds and other irreg-
ularities was overwhelming. In only a few years BANCOREX, the flag-
ship Romanian bank specializing in foreign transactions, became
bankrupt. The main triggering factor for this situation was the po-
litical intervention in the bank’s operations. As before 1990, the
members of the board of directors of BANCOREX were close affili-
ates of various political patrons. The difference was that now the
bank was de facto subordinated, via political pressure, to private
interests. This phenomenon led to the creation of what the Roman-
ian media has called ‘cardboard billionaires’.27 The cardboard
billionaires were granted huge amounts of credit, most often in
hard currencies, without any collateral or feasible business plan, but
instead based only on good intentions and political connections. More-
over, in most cases, neither the interest nor the loans have ever been
recovered.
The crisis at BANCOREX was triggered not only by political deci-
sions of the various leftist governments during the Iliescu regime but
also by bad management. The new CEO, appointed in 1997, decided
to drastically reduce BANCOREX’s bad loans and to use the courts
to enforce its credit contracts. Such a problematic loan, for instance,
was given by BANCOREX to the state-owned Romanian National
Oil Company (Petrom) and several of its refineries. The judiciary
system was incapable of litigating this case quickly, and consequently,
BANCOREX found itself with no compensation. Eventually the CDR-
led government agreed to bail out Petrom through the issuance
of government bonds and to transfer this bad loan to the state
budget.28 This however did not solve BANCOREX’s liquidity problem
in the short term. A more profitable and development-oriented solu-
Social Democracy of Romania (PDSR) and Petre Roman became the leader of the
Social Democratic Party (renamed subsequently the Democratic Party). The Demo-
cratic Party forged an alliance with other opposition parties against Iliescu’s party and
became part of the CDR-led coalition government during 1996–2000.
27
A cardboard billionaire is typically a close friend or relative of a well-positioned
politician. Usually, he or she has little, if any, previous experience in the business
sector, or even worse, may have a track record of defaulting on bank loans.

tion would have been for BANCOREX to accept a debt-for-equity

swap, given the interest of foreign investors in these refineries. The
bank would have played a major role in the restructuring, privatiza-
tion and corporate governance of the company. Such an outcome
would have produced several positive outcomes: no burden on the
state budget, more chances for the refineries to become more
accountable to its shareholders, a chance for the bank to develop a
long-term business relationship and acquire insider status with one
of their clients.
Unlike Banca Agricola, which had collapsed soon after the change
in political regime, BANCOREX became an issue only after a few
years in office for the reformist centre-right CDR-led coalition. After
several bad decisions in 1999, completely unexpected by its deposi-
tors, BANCOREX stopped making payments to its clients, due to a
severe liquidity crisis, which soon turned out to be in fact a clear
insolvency problem. This situation could not be avoided by the
central bank or the government, even though as a last-minute
measure the old management was replaced by a new team led by the
NBR vice-governor. After several months of uncertainty and contra-
dictory signals from both the bank and the government, finding
a solution for the bankrupt BANCOREX became a key condition
imposed by the IMF and the World Bank for the continuation of their
financial and technical assistance to Romania. The IMF argued that
the soundest solution for the ailing bank was its liquidation and not
a merger with the Romanian Commercial Bank (BCR), the main
state-owned bank, which had remained relatively untouched by the
soft loan and cardboard billionaire syndrome.29 Nevertheless, the
government, together with the SOF, decided that liquidation would
have incurred considerable short-term costs in order to pay back
around 600 million US dollars as international credits contracted
by BANCOREX. Instead, an acquisition by the BCR was a more
attractive alternative for the government. The only major risk was
that the BCR, which remained the backbone of the Romanian
28
See R. Tudor, ‘Guvernul a aprobat stingerea datoriei Petrom catre AVAB’, Cotid-
ianul, 7 June 1999. Available online from http://www.cotidianul.ro (accessed 16 April
2001).
29
T. Papahagi, ‘Semnarea acordului stand-by se amana’, Cotidianul, 22 June 1999.
Available from: http://www.cotidianul.ro/anterioare/1999/economic/ (accessed 4
June 2000).

economy, ran the risk of not being strong enough to deal with the
losses of BANCOREX. If that was that case, then the entire banking
system would have been on the verge of complete chaos and collapse.
Because of this risk, the BCR was fiercely against acquisition as a
solution for the BANCOREX problem. After several days of heated
debates with the government, the SOF and the central bank, the BCR
agreed to acquire BANCOREX but without its losses.
The losses that had arisen from soft loans to unprofitable SOEs
and politically connected businessmen were transferred to a newly
created state agency, the Agency for the Recovery of Bank Assets
(AVAB). Although the total amount of bad loans was estimated at
around 300 million US dollars when BANCOREX declared its liq-
uidity problem, in the end AVAB had to deal with losses of more than
two billion US dollars from non-recoverable loans granted by
BANCOREX.30 According to some estimates, this amount of bad
loans meant that 90 per cent of all loans granted by BANCOREX
since 1992 were non-profitable loans.31
BANCOREX is just one of the major cases where bank irregulari-
ties have triggered bankruptcies; seven banks have been declared
bankrupt in Romania since 1996. However, at the time of BAN-
COREX scandal, the authorities were reluctant to enforce the bank’s
bankruptcy, regardless of actual insolvency, partly because of politi-
cal pressure for state banks to provide support for loss-making state
enterprises, but also because of spillover risks and the potential for
the spread of depositor panic.
CONCLUSIONS
All of the case studies described above beg one question: where were
the regulators? The Romanian central bank (NBR) has been in the
midst of several heated debates about these issues. Some have seen
the NBR as one of the most stabilizing factors in a very fragile
environment. The prestigious magazine The Banker designated the
governor of the NBR the ‘Central Banker of the Year’ in 2001, in
30
I. Serbanescu, ‘BANCOREX – istoria emblematica a Romaniei postdecembriste’,
Revista 22, 38 (1999).
31
E. O. Chirovici, ‘Florin Ionescu a trecut, problemele BANCOREX au ramas’,
Curierul National, 2179, 11 May 1998.

recognition for his financial competence.32 However, although

professional expertise and the overall performance of the NBR
illustrates marked improvement in several aspects, the Romanian
banking system remained vulnerable to fraud, as the European Com-
mission has repeatedly pointed out in its regular reports on Romania.
The Romanian central bank was formally independent of the gov-
ernment, but was still subject to pressure, particularly to fund loss-
making public enterprises and the budget deficit. When a new statute
of the National Bank entered into force on 30 June 1998 stipulating
price stability as its main objective, the NBR could no longer finance
the budget deficit. However, the NBR continued to grant loans to the
government to fill recurrent gaps between revenues and payments
account in the Treasury. The theoretical independence of NBR con-
tinued to be often contradicted in practice. For example, the bank
bought all the treasury bills that were issued in order to recapitalize
the BCR and the Banca Agricola.
Many domestic political commentators have suggested that the
NBR was powerless in the face of growth-inhibiting factors, such as
predatory politicians and clientelistic ties between SOEs, the politi-
cal classes and the commercial banking system. One last figure
should show the extent to which this practice has become rampant
in the last few years in Romania. In 1999, two major state-owned
banks were brought to near-bankruptcy, declaring default on their
payments. The government had the choice between declaring the
banks bankrupt, or bailing them out. The government chose the
latter and paid around three billion US dollars to cover these ‘black
holes’.33
How much do these losses mean for Romania? It is enough to say
that the entire state budget in 1999 was around seven billion US
dollars, and covering these losses probably meant a drastic reduction
in budget allocation for many crucial elements of a developmental
strategy. Diverting around 40 per cent from the state budget surely
meant an increase in what was already a hyper-inflationary situation
in the following period, with damaging effects on the entire
economy. Furthermore, this decision probably meant a drastic
reduction in the budgetary allocation for other sectors: education,
infrastructure, research and development.
32
‘Central Banker of the Year’, The Banker, 911 (January 2002).
33
Serbanescu, ‘BANCOREX – istoria emblematica’, op. cit.

All too often, bank crises such as those described above were
attributed to fraud and mismanagement on the part of bank direc-
tors. Yet, the problem was not that the managers did not know or
suspect the problems they were about to face. On the contrary, the
problems were clear for many people in decision-making positions.
What hampered any precautionary measure taken, once these early
warning signals appeared, was that those heading the bank into a
crisis were too well placed politically or too well connected. There-
fore, supervisors were not able to take a determinate course of action
against a negative outcome.
This regulatory weakness occurred because basic conditions of a
functioning bank-based system were not in place. Retrospectively,
both the initial conditions and the subsequent evolution of the
Romanian financial system do not suggest that a stock-based finan-
cial system would have been a better choice for Romania. Even
though direct political interference would be less feasible in a
stock-based financial system, the regulatory challenges are much
more daunting, as the recent US corporate governance crisis has
demonstrated.
As the case of Romania has proved, financial restructuring, priva-
tization and deregulation are not always unequivocal solutions to the
transition problems, particularly when political interference and
incomplete reforms allow rent-seeking activities to derail the post-
communist transformation process. Instead of increasing efficiency
in the banking sector, deregulation created rent-seeking opportuni-
ties due to unstable rules and codes in credit and foreign exchange
markets. The financial sector became a source of wealth accumula-
tion for the politically connected elite who used their position in the
political spectrum to get a head start in the licensing of new banks,
to create cardboard billionaires, and to conduct illicit financial deal-
ings. As rent-seeking took precedence over productive financial inter-
mediation, the financial system became more exposed to financial
fragility. Financial liberalization, which was expected to help pull the
country out of economic stagnation, eventually accentuated the eco-
nomic crisis and further weakened the financial and banking sector.
The fragility of the Romanian banking system and its vulnerabil-
ity to political influences maintained throughout the 1990–96 period
were not adequately addressed by the reformist CDR-led 1996–2000
governments. Although the speed of reform has increased signifi-
cantly with regard to privatization, deregulation and macroeconomic
stabilization in line with the advice from Bretton Woods institutions,

many institutions and bureaucratic practices remained unchanged,
showing either the unwillingness or the inability of the new political
elite to alter significantly the pre-1996 clientelistic policy style.34
Furthermore, political influences on credit allocation inhibited
the growth of essential credit analysis and risk assessment skills in
general. Instead, it encouraged the continuous nurturing of closer
bank relationships with the politicians and bureaucrats who con-
trolled the fate of these enterprises and determined the risk of
default. In practical terms, Romanian bankers relied heavily on these
political relationships, rather than developing the necessary techni-
cal credit monitoring and other information-processing skills.
Indeed, given these relationships, such skills are likely to be regarded
as an unnecessary luxury. Political influences on the application of
sanctions by banking regulators also placed a premium on the estab-
lishment of cosy and lucrative relationships between bankers and
politicians. The reluctance of politicians to apply sanctions against
banks that were in trouble, until the last possible moment, was
thereby intensified and, in its turn, encouraged excessive risk-taking
when banks first encountered financial difficulties, and asset strip-
ping when the insiders realized that a bank’s continued viability was
in jeopardy.
34
The press has consistently presented cases of corruption and dubious privatiza-
tion deals that benefited the political clientele of the ruling coalition not only
during the early 1990s but also during the 1996–2000 period of CDR-led coalition
government (see for instance the privatization of Romtelecom, the national telecom
operator).

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Lucian Cernat 1

The Politics of Banking in Romania:

IN THE LAST TWELVE YEARS, ROMANIA HAS BEEN ENGAGED IN A MAJOR

© Government and Opposition Ltd 2004

and slow economic integration through trade and FDI as growth-

© Government and Opposition Ltd 2004

concludes that the prevalence of systemic corruption in state–bank

BANKING IN TRANSITION: THE ROMANIAN CASE

The communist system in Romania under the Ceausescu regime con-

regulatory supervision. Their role in the economy was to provide

© Government and Opposition Ltd 2004

of which 23 were domestic private banks, seven were state-owned and

THE MAIN SYSTEMIC PROBLEMS

The banking system that emerged in Romania in the early years of

© Government and Opposition Ltd 2004

A systemic characteristic that may arise in state-controlled banking

© Government and Opposition Ltd 2004

Inflation and bank nominal inteest rates

were ‘forced’ to grant loans to SOEs at lower interest rates than a

© Government and Opposition Ltd 2004

The question is whether such low interest rates inherently dampen

The Soft Budget Constraints

Stemming partly from the existence of financial repression, a related

© Government and Opposition Ltd 2004

dominate the banking sector of CEECs, both in terms of ownership

Source: Transition Report 1998. Financial Sector in Transition, London,

© Government and Opposition Ltd 2004

of the other countries in the sample have more or less constant or

© Government and Opposition Ltd 2004

champions’, in Romania political pressure was exercised to give loans

© Government and Opposition Ltd 2004

Self-lending represents another typical problem of the Romanian

lending, since banks are allowed to engage in a whole range of other

The following section provides a more in-depth analysis of these dis-

Banca Agricola: Soft Loans and Looting

Apart from soft loans, a distinct mechanism that contributed to the

© Government and Opposition Ltd 2004

or selling assets at major discounts, or making concessional loans to

© Government and Opposition Ltd 2004

© Government and Opposition Ltd 2004

to obtain credit from another bank, after obtaining special per-

© Government and Opposition Ltd 2004

© Government and Opposition Ltd 2004

BANCOREX: How to Create ‘Cardboard Billionaires’

Prior to 1990, BANCOREX was the only Romanian bank that

© Government and Opposition Ltd 2004

carry out a proper investigation into the matter.

© Government and Opposition Ltd 2004

tion would have been for BANCOREX to accept a debt-for-equity

© Government and Opposition Ltd 2004

© Government and Opposition Ltd 2004

recognition for his financial competence.32 However, although

© Government and Opposition Ltd 2004

stabilization in line with the advice from Bretton Woods institutions,

© Government and Opposition Ltd 2004

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