The Federation Council ratified on Wednesday, April 26 a law on the establishment of the Banking Sector Consolidation Fund (BSCF) to be built using CBR funds to finance rehabilitation of banks as part of the measures to prevent their bankruptcy.
The Deposit Insurance Agency (DIA) is currently in charge of rehabilitation. DIA selects a rehabilitation bank and provides low-interest credit to rescue a troubled lender. The new mechanism proposed in the draft law provides for a bank's rehabilitation directly by the Bank of Russia. The regulator will make injections into troubled banks through the banking sector consolidation fund and the fund's management company that it is setting up. The management company, on behalf of the Bank of Russia, will act to prevent banks from going bankrupt using the money from the banking sector consolidation fund.
This initiative is expected to allow the regulator, independently using the fund, to make capital injections into troubled banks in amounts sufficient to ensure their capitalization is appropriate. Upon completion of rehabilitation procedures 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 rehabilitation of the banks whose rehabilitation mechanism was launched before the amendments take effect. In addition, the regulator will be entitled to extend to up to five years any agreements whereby DIA provides uncollateralized credit which are used to make payments to deposit holders of troubled banks.
Due to the new bank rehabilitation mechanism, the law will modify the composition of the DIA board of directors, with the number of CBR representatives increased from five to seven, the quantity of government officials reduced from seven to five, and CBR chairwoman Elvira Nabiullina will chair the board.
