Online rumors nearly crash Bulgaria’s banking system

A series of frightening texts, emails, and Facebook messages led Bulgarians to withdraw withdrew nearly $550 million in a few hours.

Mar 2, 2020, 1:56 am*

Business

An Internet rumour allegedly stemming from a grudge between two tycoons led to a massive bank run in Bulgaria. 

As queues of people tried to withdraw their savings across Bulgaria, the country’s central bank pumped $2.3 billion worth of the nation’s currency into the banks to prevent economic disaster.

When viewed with hindsight, the cause of banking crashes often have an element of farce, but the absurdity of this caper seems obvious.

It was prompted by a series of emails, texts, and Facebook messages sent to millions of Bulgarians, warning that the country’s banks were in a mess, encouraging them to take their money out to avoid losing it all in a crash. This became a self-fulfilling prophesy, as Bulgarians rushed to banks and—in scenes reminiscent of It’s A Wonderful Life—withdrew nearly $550 million in a few hours.

Six people were arrested over the weekend for sending the scaremongering messages, but their origins remain murky. 

Early last week, there was a run on Corporate Commercial Bank, owned by the controversial tycoon Tzvetan Vassilev. This was partly due to mass withdrawals from corporate accounts belonging to politician and media baron Delyan Peevsk and his supporters. After 20 percent of the bank’s money was withdrawn in a week, it was forced to temporarily shut down.

Peevsk has previously accused Vassilev, a former business partner, of trying to have him bumped off. Three men were arrested on such charges but insufficient evidence was found, reported the Sofia Globe.

Now the deliberately false messages, which prompted a run on another bank, First Investment Bank, seem to have hurt Peevsk, since that’s where people think he deposited the money he withdrew from Vassilev’s bank. One of the men arrested for sending the malicious messages was based at a brokerage firm in Sofia, according to the New York Times.

In a thinly veiled shot at Peevsk, Vassilev claims that “political figures and businessmen with huge debts” are trying to collapse the nation’s banks because of the “huge debts they want to melt away.”

The whole episode could have dire consequences for the Bulgarian economy, since its credit rating was already recently downgraded by Standard & Poor.

“You have to remember that in the mid-1990s, Bulgaria suffered a serious banking crisis,” said  Tsveta Petrova, an analyst and risk expert at the Eurasia Group. “That made people afraid of banking problems.”

Photo by gfpeck/Flickr (CC BY-ND 2.0)

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*First Published: Jul 2, 2014, 12:48 pm