European Commission steps in to help Bulgarian banks

People queue in front of a branch of Bulgaria's First Investment Bank in Sofia on June 27, 2014 There have been runs on two of Bulgaria's biggest banks in the past week

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The European Commission has approved a request from Bulgaria to provide funding for some of the country's biggest banks.

The Commission extended a credit line of 3.3bn levs ($2.3bn; £1.4bn) to help banks that Bulgarian authorities believe have been victims of a plot to undermine the banking system.

Five people were arrested over the weekend in connection with the plot.

In the past week, there have been runs on two of Bulgaria's big banks.

"The Commission concluded that the state aid implied by the provision of the credit line is proportionate and commensurate with the need to ensure sufficient liquidity in the banking system in particular circumstances," the Commission said in a statement.

It stressed, however, that Bulgaria's banking system was fundamentally sound.

"[It is] well capitalised and has high levels of liquidity compared to its peers in other member states," the Commission said.

"For precautionary reasons, Bulgaria has taken this measure to further increase the liquidity and safeguard its financial system."

Last week, the country's central bank took over Corporate Commercial Bank, Bulgaria's fourth-largest lender, following a run on deposits. Following speculation that other banks would follow, depositors rushed to withdraw savings from First Investment Bank, the country's third-largest bank, on Friday.

This prompted the central bank to urge all state institutions to work together to protect financial stability and take legal action against those spreading "untrue and ill-intentioned rumours" about the health of Bulgaria's banks.

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