Romania faces a severe systemic risk for the first time in the recent years, Romania’s National Bank (BNR) Governor Mugur Isarescu said on Thursday, April 7. He presented the central bank’s financial stability report.

“BNR has identified a severe systemic risk for the first time. In the past six months, the law initiatives that aim to regulate the financial-banking sector by allowing retroactive interventions in the contracts between banks and clients have intensified,” Isarescu said.

“The law that defines giving in payment is the best-known such initiative but some amendments have been adopted that correct some of the signaled problems, during the review process. However, the underlying problem is the stability and the predictability of the legislative framework. There are other law initiatives that may affect financial stability, partly motivated by the fact that 2016 is an election year,” Isarescu explained.

He pointed out that Romania has made ample structural reforms in the past 26 years and has built a functional market economy, but warned that these evolutions were not irreversible. “Some law proposals risk violating the property right and the fundaments of a market economy, thus creating instability and uncertainty.”

The central bank Governor also said that Romania didn’t need to create more internal vulnerabilities as there were plenty of international threats to deal with. Britain’s possible exit from the European Union, also known as Brexit, poses a high systemic risk for Romania, according to BNR.

“Consolidating responsible budgetary policies by ensuring a high regulatory predictability and avoiding procyclical macroeconomic policy mix are essential for maintaining economic balance and supporting financial stability in the following period,” said Isarescu quoting BNR’s stability report.

An short summary of the report in English is available here.

Romania’s National Bank governor warns about risks on economic stability

Romanian central bank governor: We need to keep macroeconomic stability

Andrei Chirileasa, andrei@romania-insider.com