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Monday, May 19, 2008

Rumours, beliefs and the actions we take...

Recently in Bulgaria we haven't seen a hostile rumors over some participants in our financial sector. In about 10 to 15 years ago there were some banks that didn't succeed in overcoming the rumors about their liquidity. After a substantial amount of the deposited money were drawn out they were forced to face bankruptcy. Many ordinary people were shocked and lost the money they held in these banks. Moreover the trust in the whole system was strongly affected. We faced hyperinflation, prices were running wild... All these reasons forced the country to accept the conditions of and to start living in a currency board. Our national currency /LEV/ was bound to the German mark at a fixed rate. After the euro was born the exchange rate was automatically adjusted to 1.95583 Lev/euro. This gave the system the needed stability and the situation was normalised.

A week or two ago our financial system was attacked with such rumors again. Alerted by the worldly financial crisis taking part over the previous several months and the problems many international banks reported, many of the clients of First Investment Bank (FIB) believed the gossips that the bank did had liquidity problems. These rumors were spread mostly in the Internet forums. At the most extreme moments of the story they were coming also by sms or spam emails. Surrounded by such fears the people preferred to withdraw their money from the bank while they still can. In the mean time the graph of the FIB trading on Bulgarian Stock Exchange looked more positive than negative. It didn't gave any hint such situation might not be a fake. Some days after the first queues of people in front of the bank offices the Central Bank of Bulgaria after asked by reporters commented the bank didn't have any liquidity problems. In the meantime for about two days the prices of the FIB shares lost about 10%. On the second day the positive sentiment prevailed and the prices closed above their open level for that day. The reports about the smaller and smaller queues of people withdrawing money continued to come. The situation seemed to calm down...

Maybe the FIB will survive and these times will be forgotten. But the situation is worth mentioning. It shows the strengths of the beliefs and fears, how they motivate people thus being one of the most powerful means of causing actions. Actions which might be right or not. Time will show.