The recent banking crises around the world have heightened concerns for international creditors, particularly those with investments in countries like Slovenia, where bank failures have occurred. The primary legislation governing banking activities in Slovenia is the Banking Act (ZBan-2), which provides the legal framework for the establishment, operation, supervision, and resolution of credit institutions. In case of bank failure, the Resolution and Compulsory Dissolution of Banks Act (ZRPBPO) comes into play, outlining the procedures, powers, and responsibilities of the Slovenian authorities in resolving or liquidating a failed bank.
Several Slovenian banks have faced significant fines for misconduct, including Nova Ljubljanska Banka (NLB) and Nova Kreditna Banka Maribor (NKBM). The penalties, ranging from millions to tens of millions of euros, were imposed for offenses such as breaching anti-money laundering regulations, violating sanctions, and providing misleading information to regulators. Despite the severity of these penalties, the banks were not shut down as they are considered systemically important, and their failures could have had severe repercussions for Slovenia’s financial stability.
Bank Failure in Slovenia
Bank failure in Slovenia is defined as a situation where a credit institution is either unable or likely to become unable to meet its financial obligations, comply with regulatory requirements, or maintain sufficient capital and liquidity. This could be due to insolvency, illiquidity, or severe violations of banking regulations.
The Bank of Slovenia, as the country’s central bank and supervisory authority, is responsible for determining bank failure in Slovenia. It assesses the financial health of banks through regular supervisory reviews, stress tests, and analyses of key financial indicators. If a bank is found to be failing or likely to fail, the Bank of Slovenia initiates resolution or liquidation procedures.
The Bank of Slovenia has a legal mandate under the Banking Act and the ZRPBPO to supervise credit institutions, enforce compliance with banking regulations, and initiate resolution or liquidation procedures for failing banks. It also cooperates with the Single Resolution Board (SRB), a European agency responsible for the resolution of significant banks within the Banking Union, in cases where Slovenian banks fall under the SRB’s jurisdiction.
Upon concluding that a bank has failed, the Bank of Slovenia or the SRB initiates resolution or liquidation procedures, depending on the specific circumstances and the systemic importance of the bank. Common reasons for bank failure in Slovenia include inadequate capital, insufficient liquidity, mismanagement, fraud, and breaches of regulatory requirements.
Bank Supervision and Resolution Planning in Slovenia
Bank supervision in Slovenia aims to preserve the critical functions of banks and ensure their continuation during financial distress. The Bank of Slovenia conducts regular supervisory reviews, stress tests, and evaluations of banks’ internal risk management systems to identify potential vulnerabilities and require banks to take corrective measures. Additionally, banks are required to develop recovery plans outlining the measures they would take to restore their financial health in case of a crisis. The Bank of Slovenia, as the resolution authority, follows several steps when a bank fails within its jurisdiction. These steps include:
- Determining the bank’s failure: The Bank of Slovenia assesses the financial condition of the bank and decides whether it has failed or is likely to fail. This determination is made in cooperation with the European Central Bank (ECB) and the Single Resolution Board (SRB) if the bank falls under their jurisdiction.
- Choosing the appropriate resolution tool: The Bank of Slovenia, in consultation with the SRB, selects the most suitable resolution tool from among the available options, such as sale of the business, bridge bank, asset separation, or bail-in.
- Implementing the resolution plan: The Bank of Slovenia, as the resolution authority, executes the chosen resolution plan, ensuring that the process is orderly and minimizes the impact on financial stability.
- Protecting depositors and creditors: The Bank of Slovenia ensures that depositors and other creditors are protected in accordance with the Slovenian Deposit Guarantee Scheme and relevant laws, providing compensation or transferring their claims to a new institution, as applicable.
Slovenian legislation provides various resolution tools for reorganizing, recapitalizing, restructuring, or dissolving a failed bank:
- Sale of the business: The Bank of Slovenia may sell the whole or part of the failed bank’s business to another credit institution, ensuring the continuity of critical functions and services.
- Bridge bank: The Bank of Slovenia may establish a temporary bridge bank to take over and continue the critical functions of the failed bank until a suitable buyer is found.
- Asset separation: The Bank of Slovenia may transfer impaired or non-performing assets to a separate asset management vehicle for orderly wind-down, reducing the burden on the failed bank and facilitating its resolution.
- Bail-in: The Bank of Slovenia may write down or convert the liabilities of the failed bank into equity, thus recapitalizing the bank and allowing it to continue operating.
Protection of Account Deposits and Creditor Interests
Slovenian law protects account deposits and other creditor interests through the Deposit Guarantee Scheme (DGS), which guarantees the repayment of eligible deposits up to €100,000 per depositor per bank. Additionally, the Bank of Slovenia ensures that creditors’ claims are treated fairly and in accordance with the hierarchy of claims during the resolution or liquidation process.
The Bank of Slovenia, as the resolution authority, ensures that non-viable firms exit the market in an orderly way, minimizing disruption to financial stability and protecting the interests of depositors and creditors. This is achieved through the application of appropriate resolution tools and the involvement of the relevant authorities, such as the ECB and the SRB.
Bank Liquidation in Slovenia
If the Bank of Slovenia determines that a failed bank is not systemically important or that resolution is not in the public interest, it initiates liquidation procedures under the Insolvency Act. In this case, the bank’s assets are sold, and the proceeds are distributed among the creditors according to the hierarchy of claims established by law.