New bank rescue mechanism allows for bringing in outside investor - Central Bank
MOSCOW. March 2 (Interfax) - The new bank rescue mechanism allows for bringing in outside investor along the same lines as the existing financial rejuvenation system, the Central Bank said in a statement, posted on its website.
The Central Bank wants to change the model for the financial recovery of banks in 2017 as it considers the current one to be ineffective. The Central Bank has pointed to the fact that investors who have received credit for financial rejuvenation purposes have often use these to solve their own problems.
If in the past funds to rescue a bank were issued to investors in the form of credits, now the regulator wants to issue funds to a distressed bank directly, as a capital injection, and not in the form of credits. The State Duma has passed the relevant bill at its first reading.
Under the new mechanism, the Central Bank, not the Deposit Insurance Agency, would carry out the rescue. Financing would be provided by a fund for consolidation of the banking sector formed using Central Bank money. Shares and other property of the bank undergoing rescue might be transferred into the trust management of a company whose sole owner is the Central Bank.
The management company would act in the name of the regulator, use the fund's resources and take measures to avoid bankruptcy and reach a settlement on the bank's liabilities. The ultimate goal is to sell the banks that have undergone recapitalization to new owners in public auctions conducted by the Central Bank.
"The Bank of Russia envisages that prevention of bankruptcy by means of direct recapitalization of the bank subject to rescue will be used as the main model for rescue, but at the same time, draft legislation provides for the opportunity for the regulator to attract an outside investor to participate in the capital of the bank being rescued along the same lines as the procedure by which the Deposit Insurance Agency participates in a bank's rescue," the Central Bank said.
"Implementing the new mechanism would minimize expenditure by the state on financial recovery measures," it said.