Montenegro’s financial authorities have tested their ability to manage a failing bank through a crisis simulation conducted with the World Bank, as the country prepares for closer integration with the European Banking Union.
The exercise brought together around 50 officials from the Central Bank of Montenegro, the Finance Ministry, the Deposit Protection Fund, the Capital Market Commission and the Competition Protection Agency. Participants worked through a fictional bank failure to assess decision-making, information exchange and emergency coordination under time pressure.
The simulation did not involve an actual distressed institution and does not indicate a deterioration in the health of Montenegro’s banking sector. Its purpose was to identify procedural weaknesses and improve institutional preparedness before a real crisis occurs.
EU Accession Requires Stronger Resolution Frameworks
The programme forms part of Montenegro’s preparations under EU accession Chapter 9, which covers financial services. The process includes aligning national rules with European requirements for bank resolution, supervision and depositor protection.
Bank-resolution frameworks establish how authorities should respond when a financial institution becomes unviable. European rules are designed to preserve financial stability while limiting reliance on taxpayer-funded bailouts. Depending on the circumstances, resolution measures can include imposing losses on shareholders and certain creditors, selling assets, transferring deposits or restructuring a bank while maintaining critical services.
Implementing these measures requires coordination among several public institutions. The central bank needs supervisory information, while the Finance Ministry must assess potential fiscal implications. The Deposit Protection Fund must be prepared to compensate insured depositors, and competition authorities may need to assess emergency transactions. The simulation allowed the participating institutions to test their procedures without the pressure and uncertainty associated with an actual bank failure.
Banking Indicators Support a Preventive Approach
Montenegro’s banking sector currently shows relatively strong indicators. Total loans have reached approximately €5.89 billion, deposits stand at around €6.49 billion, and reported non-performing loans remain low. The sector is also well capitalised.
The exercise was therefore a preventive regulatory measure rather than a response to an existing banking crisis. Authorities need to maintain their readiness because financial conditions can change rapidly during periods of market stress. Cyber incidents, liquidity shocks or problems at individual institutions can escalate if regulators and other public bodies lack clear intervention procedures and cannot exchange information or make decisions quickly.
Operational Preparedness Becomes More Important
EU accession will bring Montenegro further into the European financial framework and increase expectations for supervision, resolution and cross-border cooperation. Domestic banks will also face greater competition and more complex regulatory obligations.
The simulation represents a move beyond adopting EU-aligned legislation towards testing whether institutions can apply the rules in practice. Formal legal alignment alone does not guarantee that agencies can coordinate effectively during a crisis. For banks, stronger resolution arrangements can support confidence in the financial system while raising expectations for recovery planning, capital management and internal governance. For depositors, the principal benefit is greater clarity about protection arrangements and continuity of access to banking services.
No recapitalisation or emergency financial support was announced as part of the exercise. The focus remained on institutional coordination and readiness to manage a potential bank failure in line with European standards.
