Banking reform in Romania started in December 1990, when the two-tier banking structure involving the central bank, the National Bank of Romania, and commercial banks was introduced. In setting up a western style banking system, the National Bank of Romania assumed the traditional central banking functions, and its previous commercial operations were transferred to a newly established commercial bank.
In April 1991, the laws concerning banking activity (Law No.33/1991), and the statute of the National Bank of Romania (Law No. 34/1991), were passed by Parliament, in order to create a modern banking environment. These laws were drafted in line with the European Union (EU) banking directives. The National Bank of Romania closely monitors the changes in the banking legislation existent in developed countries, particularly in EU member countries. It intends to amend further the Romanian legal framework for banking activity, to harmonise it with EU regulations. This work will continue under international technical assistance and will facilitate the European integration of Romania.
Under Central Bank Law, the National Bank of Romania has a high degree of independence, being accountable only to the legislative body of the country. The Governor and the Board of Directors are appointed by Parliament, upon the recommendation of the Prime Minister, for a renewable eight-year term. They can only be removed by Parliament at the request of the Prime Minister.
As a central bank, the National Bank of Romania focuses on the control of the money supply and interest rates. It is also responsible for the conduct of the exchange rate policy and the management of the official international reserves. At the same time, the National Bank of Romania is the sole banking supervisory authority in the country, empowered by law to act as a last resort lender to commercial banks in distress. It is worth mentioning that the law on central bank activity places limits on the amount of credit that the National Bank of Romania can extend to the State budget.
The general banking law of 1991 provides significant changes for the Romanian banking environment. The banks which turned into joint stock companies are independent and profit oriented. They are entitled to engage in a wide-range of banking operations and to operate throughout the country within the supervisory and regulatory framework defined by the National Bank of Romania. Since the introduction of the modern banking legislation, new private banks have been established in order to promote efficient competitive markets, and to develop a more active role for the banking sector by diversifying and improving its services. By December 1997, 41 banks were operational, of which ten branches were foreign banks.
In order to increase the efficiency of the commercial banking system and to provide a better allocation of financial resources, the Parliament of Romania adopted a specific law on bank privatisation.