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Document Type

Case Study

Case Series

Ad hoc Emergency Liquidity Programs

Abstract

In the fall of 2014, a bank fraud involving illegal loans and transfers resulted in USD 1 billion being stolen from the government of Moldova, which amounted to more than an eighth of Moldova’s GDP. In September 2014, it became clear to the National Bank of Moldova (NBM) that the banks involved in the fraud—Banca de Economii, Banca Sociala, and Unibank—were deeply insolvent and had been hiding that fact from regulators. In late November, the NBM issued 9.4 billion Moldovan lei (MDL; USD 640 million) in emergency credit to the banks at an interest rate of 10 basis points against collateral for a period of four months and took the banks into government administration. The central bank later said the banks were on the brink of collapse and that their disorderly failure could result in bank runs and contagion. In the two weeks between the government’s secret decision on November 7 to support the banks with liquidity and the state administration intervention on November 27, the banks lent a further MDL 35.5 billion to connected companies through a flurry of complex transactions. In 2015, the NBM issued a second tranche of credit worth an aggregate MDL 5.0 billion. The government guaranteed the loans and, during 2015, took them over from the NBM. As of year-end 2022, the banks were still in the process of liquidation and had repaid an aggregate MDL 2.7 billion. They continued to owe MDL 11.4 billion, which the government is unlikely to recoup.

Date Revised

2025-04-15

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