4 Aug 2022 13:43

CBR mulling financial sector support fund for force majeure situations financed at expense of market participants

MOSCOW. Aug 4 (Interfax) - The events of recent months, which have significantly reshaped the Russian financial market, have prompted the Central Bank of Russia (CBR) to consider creating a special protection mechanism in case of force majeure situations.

At the moment, there is no need for emergency measures, the Central Bank repeated in a document published on Thursday for public discussion of its previously declared stance: "the financial sector is able to restore financial stability on its own in the medium term," and "systemic recapitalization of the financial sector, including the banking sector, is not required."

However, "the situation in the financial market and the economy may change under the influence of external negative factors," the regulator said in a statement. "In case they materialize, it is possible that along with assistance from owners of financial organizations, systemic support of the financial sector will be required, which may be provided in various forms depending on the scale of problems - both in the form of direct recapitalization through acquisition of shares and (or) subordinated liabilities, and in the form of capital guarantees ensuring support if the financial situation of an organization deteriorates. For these purposes, the Central Bank may consider the advisability of creating an autonomous fund to support the financial/banking sector, formed at the expense of contributions of financial intermediaries (analogous with the deposit insurance fund)," the document said.

At the same time, support will be provided only if the losses of financial institutions are related to force majeure circumstances and are not a consequence of previously used risky business models, the Central Bank said. "Support measures should not cover losses incurred as a result of ineffective policies of owners of individual financial institutions, thereby worsening the competitive position of those financial intermediaries that used a more prudent and balanced approach to risk management," the regulator said.