At its April 21 plenary session, the State Duma adopted in the third reading a law on the new mechanism of rehabilitating banks. The document was approved unanimously. The amendments will take effect 45 days after official publication.
The Deposit Insurance Agency (DIA) is now in charge of bank rehabilitations. The agency chooses a rehabilitating bank and provides low-interest loans to rescue a troubled lender. The new mechanism which was proposed in the draft law provides for rehabilitation directly by the Bank of Russia. The Bank of Russia will inject funds into troubled banks through an under-establishment fund for consolidation of the banking sector and a management company of this fund. On behalf of the Bank of Russia, the management company will act to prevent banks from going bankrupt using the money from the banking sector consolidation fund.
The mechanism is expected to enable the regulator, on its own through the fund, to invest independently in banks under rehabilitation in the amounts required to lift their credit portfolio to the necessary level. Upon completion of rehabilitation banks are intended to be sold to a new owner at a public auction to be held by the Bank of Russia.
DIA will continue to rescue banks whose rehabilitation mechanisms were launched before the amendments take effect. In addition, the Bank of Russia will be entitled to extend to five years any agreements under which DIA issues unsecured loans, a portion of which is spent on compensation to deposit holders at troubled banks.
Due to the new bank rehabilitation procedure, the law will change the composition of DIA's board of directors, with the number of board members rising from five to seven, and the number of government appointees reduced from seven to five. The board of directors will be chaired by CBR chairwoman Elvira Nabiullina.
