In response to the current market conditions the Russian authorities have launched several initiatives which face the financial crisis and mitigate the difficulties that banks currently have with liquidity and debt repayment. Thus, new laws and regulations have been adopted in order to help the financial system deal with the crisis.
In dealing with the effects of the financial crisis on the Russian financial system, the Russian Parliament, the Government of the Russian Federation (the Government) and the Central Bank of the Russian Federation (the Central Bank) have adopted or are to adopt new laws and regulations aimed to help (i) the financial system deal with the crisis in general and (ii) banks restore a certain level of liquidity through State controlled banks.
Below you will find a short description of the new laws and regulations.
Federal Law "On additional measures to support the financial system of the Russian Federation"
On 13 October 2008 the Russian Parliament adopted the Federal Law of the Russian Federation N 173-FZ "On additional measures to support the financial system of Russian Federation" (the Law N 173-FZ). It is aimed at providing aid to Russian banks to repay and service their foreign loans. For these purposes the Central Bank has provided the Bank for Development and Foreign Economic Affairs (Vnesheconombank) with up to $50 billion to be granted to financial institutions and corporate entities for the repayment of their foreign loans contracted prior to 25 September 2008. The minimum interest rate for such loans is set at 5 percent higher than the LIBOR rate as of the date of the loan. The Law 173-FZ also provides that Vnesheconombank is to grant a series of unsecured subordinated loans to Open Joint Stock Company "VTB Bank " of up to 200 billion Roubles (approx. $7.4 billion) and to Open Joint Stock Company "Rosselhozbank" (Russian Agricultural Bank) of up to 25 billion Roubles (approx. $929.36 million) at an interest rate of 8 per cent per annum with final repayment at the end of 2019.
The Central Bank shall also provide the Savings Bank of Russia (Sberbank) with several unsecured subordinated loans for a total amount of 500 billion Roubles (approx. $18.6 billion) at an interest rate of 8 per cent per annum with final repayment at the end of 2019.
The State controlled banks mentioned above are supposed to then distribute the received funds to private banks.
Central Bank Regulation "On providing Russian credit organisations with unsecured loans by the Central Bank"
The Central Bank has adopted a Regulation "On providing Russian credit organisations with unsecured loans by the Central Bank" and dated 16 October 2008. Under this Regulation the Central Bank shall provide the applying banks with unsecured six months term loans in Roubles. Such loans shall be distributed to applying banks through a credit auction conducted at the MICEX. The bidding banks should comply with certain requirements, including being rated at least "B-" or "B3" for long-term credit worthiness.
Federal Law "On additional measures to stabilise the banking system during the period up to 31 December 2011"
On 28 October 2008 another new law – 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" (the Law N 175-FZ) came into force.
The aim of Law N 175-FZ is to introduce a new market mechanism for centralised financial rehabilitation of the Russian banking system as opposed to the existing practice of acquisition of ailing banks by the State or State related entities. Thus, under Law N 175-FZ if the financial position of the bank is unstable, the Deposit Insurance Agency (the DIA) shall have the power to exercise several bail-out options to prevent the bank from collapsing. In this case the Central Bank shall not recall the banking licence of such an ailing bank.
According to the Law N 175-FZ the DIA can source investors and provide them with finances for acquiring an ailing bank, as well as advise on the bank's rehabilitation. It can also finance the acquisition of a troubled bank's property or debts.
The State will provide the DIA with 200 billion Roubles for these purposes.
An ailing bank can either find an interested investor and apply to the Central Bank to finance the transaction, or ask the DIA to conduct a tender amongst a select number of banks, for its acquisition. If no investors are interested, the DIA can itself buy out 75% plus one share in the bank and put it to a public auction.
Amendments to Federal Law "On federal budget for 2008 and a planning period for 2009 and 2010"
The aforementioned measures dealing with crisis require substantial financial contribution from the State.
Thus, the Russian State Duma has amended the Federal law "On federal budget for 2008 and a planning period for 2009 and 2010". It now provides for a 200 billion Roubles contribution to the DIA and a 175 billion Roubles allocation for measures to shore up the Russian financial market and economy. Though these amounts were initially included in the 2009 budget, the Government will use them this year. Additionally, $500 million will be allocated to the Programme on State Financial and State Export Loans for 2008.
The State will also contribute 75 billion Roubles to the charter capital of Vnesheconombank to enable it to finance further measures to support the Russian financial system.