The European Commission said on Thursday (Sept 25) it has opened infringement proceedings against Bulgaria for failing to correctly transpose sections of the EU's Deposit Guarantee Scheme (DGS) Directive in national law as well as for breaching the principle of free movement of capital.

Local authorities have until October 15 to respond to the EC's letter of formal notice, which is the first stage in the infringement proceedings.

Bulgaria's national deposit guarantee law stipulates that the Bulgarian Deposit Insurance Fund must repay deposits of up to EUR 100,000 within 20 working days from the date the central bank (BNB) has revoked a bank's licence.

The case in hand concerns the savings of depositors parked at the troubled Corporate Commercial Bank (Corpbank), which still has its licence, but has been under central bank conservatorship since end-June. The bank's depositors have not had access to their funds for more than three months.

The EC recalls that EU law takes precedence over national law and insists that Bulgaria is required to apply the DGS Directive in spite of contradicting provisions of national law. The DGS requires the appropriate authority to pay out duly verified claims of depositors within 25 days of deposits becoming unavailable.

The Commission further said that the conservatorship imposed by the Bulgarian authorities on Corpbank and its subsidiary Commercial Bank Victoria appears to constitute a non-justified and disproportionate restriction to the free movement of capital. The EC noted that the conservatorship under which the banking group was placed imposes a complete suspension of payments and bank activities even though the domestic law allows less intrusive measures, permitting a choice between full and partial suspension of payments and limitation of activities.

Bulgarian authorities are dragging their feet on a decision about how to proceed with the collapsed bank, which once housed most of the state companies' deposits and current accounts, amid political uncertainty ahead of the October 5 general elections. While its majority owner, controversial businessman Tsvetan Vassilev, and the second biggest shareholder, Oman's sovereign wealth fund, have declared interest to participate in a rescue of the bank, no definite proposals have been made, but a bailout with taxpayers' money has been mentioned repeatedly by various high-ranking officials.