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EU approves state aid for troubled Bulgaria banks

SOFIA, Bulgaria--Brussels gave the green light for Bulgaria to set up a “precautionary” credit line of 1.7 billion euros (US$2.3 billion) on Monday to stop a run on two of its banks from turning into a full-blown crisis.

The Bulgarian government has blamed the panic on “criminals” spreading false rumors of financial trouble at the banks.

It was forced to temporarily close the fourth-largest private bank, Corporate Commercial Bank (CCB), on June 20 after doubts were raised about its solvency, leading panicked customers to try to empty their accounts.

Late last week, more rumors spread online and via mobile phones that sparked a run on First Investment Bank (FIB), the third largest, provoking scenes of near-hysteria outside branches in the capital.

President Rosen Plevneliev denied that the ex-Soviet country's banks were on the verge of collapse on Sunday, and police said that six people had been arrested for “spreading false information.”

“There is not a crisis in the banking sector. There is a crisis of confidence and a criminal attack,” Plevneliev said.

He has the support of the European Commission, which said on Monday there was no sign of trouble in the Bulgarian banking system, which is “well capitalized and has high levels of liquidity compared to its peers in other member states” in the 28-nation European Union.

The commission approved plans submitted by Bulgaria over the weekend for a 3.3-billion-leva (1.7 billion euros, US$2.3 billion) “liquidity support scheme,”

The credit line was “proportionate and commensurate with the need to ensure sufficient liquidity ... in the particular circumstances,” it said in a statement.

Bulgarians have bitter memories of a grave financial crisis in 1996-97, when 14 banks, many of which owned shares in the others, went under in a little over one year.

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