Russian cbank wants to setup bailout fund to limit state help

CHENGDU, China, Jul 25 (PRIME) -- The Russian central bank has prepared a draft law envisaging establishment of a fund for bailout of troubled banks which are too big to be shut down, and the new mechanism will limit the scope of state aid, Chairwoman Elvira Nabiullina told reporters on Monday.

“We have prepared a concept of establishment of a fund of this kind and a draft law. It will now be discussed with the government,” Nabiullina said. “We have suggested indeed, in accordance with international experience, to write off the liabilities of banks to former shareholders fully if state money is allocated for financial recovery.”

The fund will be allowed to sell banks cheaper than the value of their capital, this will be less costly for the government than the existing bailout mechanism. “We are in fact financing the recovery of banks even now by giving cut-rate loans (to the Deposit Insurance Agency). But we are in fact, subsidizing this system,” Nabiullina said.

She said that the new fund will not require large investments straightaway, the central bank will provide money “from time to time.”

According to Nabiullina, a system of bail-in, or conversion of liabilities to creditors into stakes of jeopardized banks carries many risks and must be discussed further. She said that the mechanism will unlikely be introduced in 2017.

She separately said that the central bank will introduce a criterion of scope of information disclosure while giving admission to banks to work with state budget funds.

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