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The reasoning of the government bill, enacted into law by the Turkish parliament as Law 5020 Amending the Banks Act and Certain Other Laws (Law 5020), explains in a few sentences why amendments were required to the legislation regulating the banking and finance system: the Savings Deposit Insurance Fund (SDIF) owes about $25 billion to the Turkish Treasury, due to bank failures. The reasoning includes a brief history explaining how this debt reached such an enormous figure and says that the government is determined to collect this amount from the liable parties, especially the bank owners and their cooperators who intentionally caused these failures and somehow benefited from them.

SDIF, an autonomous agency

Before the enactment of Law 5020, the SDIF was represented and managed by the Banking Regulation and Supervision Agency (BRSA), which made the SDIF a legal entity under the control of the BRSA. Under the new law, the SDIF is managed and represented by its own board, making it an autonomous agency. The authority of the BRSA board that relates to the SDIF is transferred to the SDIF board.

How far the SDIF can go

The SDIF currently offers unlimited deposit coverage. This coverage is limited to TL50 billion ($34,073) as of July 5 2004. In addition to its authorities listed in the Banks Act 4389 (the Banks Act), Law 5020 provides detailed provisions explaining how far the SDIF can go to collect its receivables. This is a reaction to the shareholders controlling the management of certain failed banks and other relevant individuals who tried to impede the legal proceedings against them, benefiting from loopholes in the Banks Act. Law 5020 states that, if there is a difference between the insured deposit amount declared by the failed bank and the amount of the insured deposit determined by the SDIF, the SDIF is empowered to take any action it deems necessary either through a court decision or, in cases where it would endanger the collection of receivables, through a decision of the public prosecutor.

Law 5020 also provides that certain agreements entered into between the bank and: (i) the board of directors and the credit committee, managers, authorized signatories, bank officers, branch managers and persons directly and/or indirectly controlling or holding the shares of a bank and certain relatives of those persons; (ii) affiliates, subsidiaries and shelf companies of the controlling shareholders; and (iii) third parties, would be invalid against the SDIF. The purpose of these sanctions is not to invalidate all the agreements of a failed bank but to prevent unlawful transfer of a bank's funds or facilities to such persons.

In addition to broadening and explaining in detail what the SDIF can do against those that cause, or benefit from, bank failures, Law 5020 has broadened the SDIF's procedural advantages.

Who will be affected

Law 5020 details which provisions will be applied to which banks and individuals. Certain provisions of Law 5020 will apply to all banks, whereas some provisions would only apply to failed banks as of December 26 2003. One of the most important provisions of Law 5020 is Temporary Article 3, which sets out the provisions that apply to banks that have been transferred to the SDIF or whose banking permissions have been revoked or against whom the SDIF has commenced liquidation proceedings before Law 5020 entered into force.

By virtue of Temporary Article 3:

The controlling shareholders of a failed bank could be subject to sanctions, under the Money Laundering Act provisions.

Assets, rights, and receivables of a board of directors' members that are not duly declared by the members would be considered unjustly acquired, unless proven otherwise.

If a failed bank is indebted to the SDIF due to the illegal use of bank resources, any kind of asset, money or receivable acquired directly or indirectly by the managers, shareholders or employees of a bank, or related third parties, after the bank has extended a facility would be deemed to have been acquired through the illegal use of bank resources. Such assets are accepted as the assets and receivables of the SDIF.

All funds used by the controlling shareholders of a failed bank and the funds transferred to the board of directors' members, credit committee members, general managers, assistant general managers, authorized signatories, and to relatives of all such individuals, would be accepted as the assets and receivables of the Treasury.

The 10th Chamber of the Appellate Administrative Court has been designated as a specialized court and will be hearing cases relating to the Banks Act and the Capital Markets Law. This will ensure the specialization of certain chambers and a more efficient judgment process.

Piraye Kuranel - Hande Yayla

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