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29 Sep, 2008 02:03

Funding spectre haunts smaller Russian banks

The funding crisis engulfing many of Russia’s smaller banks has sparked a row over what measures the Government and Central Bank of Russia should be taking to help them out. The IMF is warning that many possible steps could exacerbate Russia’s biggest ec

Russobank is ranked 187th nationwide by assets.  It is part of a second tier of Russia’s banking system, which can't get loans in the credit crunch to repay debts now due. Deputy Chairman, Yury Selivanov, says the bank has been saved only by a timely withdrawal from the market.

“Half a year ago we began to cut our investment portfolios. We stopped buying bonds with long maturities. Only the largest banks lend money to each other, while the market is frozen for the second-tier banks.”

The Central Bank of Russia's vowed daily billion-dollar injections to major banks until “the crisis is over”. But some politicians and the public are pushing the Kremlin to support all banks, and over the longer term. The British government took over Northern Rock after clients panicked about its liabilities. But Paul Tomsen, Head of the IMF in Russia says weak Russian banks should be allowed to die.

“Having these sources of long-term government financing of the banking system could actually undermine monetary policy.”

The IMF argues Russia has too many banks, and a compulsory Insurance Scheme covers 90% of deposits up to $16,000. But that's unlikely to calm those whose confidence in Russian banks is still recovering, from their general default of 1998.