Following the measures on emergency financing to Russian banks exercised through the Central Bank of the Russian Federation (the CBR) and the Bank for Development and Foreign Economic Affairs (Vnesheconombank or VEB), the State Duma (the lower house of the Federal Assembly, the parliament of Russia) passed a new law seeking to extend the CBR's control over the banks that received state financial support. The CBR's representatives may now take part in the meetings of banks' management bodies and request from the bank certain information on transactions.

Federal Law of the Russian Federation No. 317-FZ "On amendments to Articles 46 and 76 of the Federal Law "On the CBR (Bank of Russia)" (the Amendments) took effect on 31 December 2008. The purpose of the Amendments is to grant to the CBR additional control powers over activities of the banks, that received the state financial support, by appointing to such banks the CBR's authorised representatives (the CBR Representatives).  

Appointment of the CBR Representatives

The CBR Representatives may be appointed to the banks that:  

  • received a foreign currency loan from VEB under the Federal Law of the Russian Federation N 173- FZ "On additional measures to support the financial system of the Russian Federation" dated 13 October 2008 (the Law N 173-FZ)1;
  • received a subordinated loan from the CBR or VEB under the Law N 173-FZ;
  • received a loan from the CBR for a term of more than one month in accordance with the amendments to the Federal Law "On the CBR (Bank of Russia)";
  • placed as deposits certain federal budget funds which they received in accordance with the Budget Code of the Russian Federation; and
  • received the bail-out support from the CBR and the State Corporation Deposit Insurance Agency in order to prevent the bank from bankruptcy under the Federal Law of the Russian Federation N 175-FZ "On additional measures to stabilise the banking system during the period up to 31 December 2011" dated 27 October 2008 (the Law N 175-FZ)2.  

The CBR Representatives can be appointed to a bank when such bank actually received the funds of the loan or deposit and remain until the bank fulfils its obligations under the respective loan agreement.  

Powers of the CBR Representatives  

The Amendments allow the CBR Representatives to take part in meetings of the banks' management bodies, as well as other internal bodies (departments) of the bank responsible for lending and asset management activities. This, does not, however, give the CBR Representatives any voting rights.  

The CBR Representatives are entitled to request from the bank any documents and information related to the bank's lending activity (including the volume and terms of existing and anticipated loans), granting of bank guarantees and bank's asset management activities.  

Obligations to report to the CBR Representatives

According to the Amendments, the banks are now required to report to the CBR Representatives if they intend to enter into one of the following transactions:  

  • lease, pledge, contribution to share capital or other kind of transfer by the bank of its immovable property, or the replacement of immovable property of a third party pledged with the bank by another property or another type of security;
  • disposal of other property of the bank with the balance value of more than 1% of the balance value of the total bank's assets, including borrowing and lending, granting of bank guarantees and suretyships, assignment of receivables, acceptance and waiver of debt, novation, break costs and trust management;
  • fulfilment of the bank's obligations related to received loans, deposits, repurchase agreements and other transactions if the balance value of such obligations or group of interrelated obligations is more than 1% of the balance value of the bank's total assets;
  • transfer of funds by the bank to foreign banks if the amount of such transfer or interrelated transfers is more than 1% of the balance value of the bank's total assets; and
  • contracting with interested or affiliated parties if the amount of the transaction is more than 0,5% of the balance value of the bank's total assets.  

Such extension of the CBR control is aimed to ensure that the state funds distributed to Russian banks to prevent their insolvency are properly used. In addition, this measure might be also viewed as one of the CBR's instruments to protect the position of the Russian national currency (rouble).