Russia Supports Banking System until 31 December 2011
OREANDA-NEWS. October 29, 2008. Dmitry Medvedev signed a federal law "On Additional Measures to Ensure the Stability of the Banking System until 31 December 2011".
The federal law sets up a legal framework for swift action to prevent the bankruptcy of banks.
If there are indications that a bank's financial situation is precarious, or that the stability of the banking system and the interests of depositors and creditors are under threat, the law permits the Bank of Russia jointly with the State Deposit Insurance Agency to act in different ways to simplify and expedite the financial recovery of the bank in question.
In the first scenario, financial assistance can be provided for investors willing to become a majority stockholders in an agreement worked out with the bank's owners. This provides for a rapid infusion of cash to quickly bring the bank more money and ensure its continued operation.
In the second scenario, in the absence of such investors, the responsibility for administering the bank can be transferred to the Bank Deposit Insurance Agency, along with the temporary acquisition by the Agency of a majority holding in the bank which can later be resold.
The third scenario allows for the transfer of the bank's liabilities to a third party, along with its holdings as collateral. This is done with the participation of the Agency acting as the intermin administrator of the bank.
These and other measures prescribed by the law will protect the rights and interests of depositors and creditors of individual banks, as well as ensure the stability of the banking system as a whole. However, given the exceptional mechanisms for the implementation of these measures, the federal law expires on 31 December 2011.