23 Nov 2022 11:46

CBR mulling standalone fund to support banking sector

MOSCOW. Nov 23 (Interfax) - The Central Bank of Russia is thinking about setting up a standalone fund to support the banking sector with deductions by banks along the same lines as the deposit insurance fund.

"We don't see any need for systemic recapitalization, although individual banks might need this. But we are already granting quite a lot of relief on buffers so as to soften the blow. As for the future, we do of course have to think about creating a standalone support fund, so that banks can save themselves, so that emergency state funding or something else is not needed. This will also ease the burden on the insurance system," Alexander Danilov, director of the CBR's Banking Regulation and Analytics Department, said during a conference organized by the Association of Russian Banks.

"We'll be thinking about it. This is a complex issue. We understand that this is a question of the burden on the banking sector, and deductions, and this must be calibrated together with how much a bank deducts to the insurance system," he said.

Such a fund can be used to help banks in times of crisis or support banks that develop important areas of lending, for example, development projects, SMEs, and so on, Danilov said in a presentation.

Answering the question of whether the CBR of the government would be prepared to co-finance the fund, he said that the concept of is still in the preliminary stages of development. "We will see, we'll think about it and discuss it," the department head said.

The Central Bank raised the issue of creating a fund to support the financial sector via contributions of market participants in August as part of its new regulation concept. As noted by the regulator, the situation in the financial market and the economy could change under the influence of external negative factors. In case they materialize, it is possible that along with the assistance of financial institutions' owners, systemic support of the financial sector will be required, which can be provided in various forms depending on the scale of problems - both in the form of direct additional capitalization through acquisition of shares and (or) subordinated liabilities, and in the form of provision of capital guarantees, which entitle a organization to receive support if its financial position deteriorates.

For these purposes, the CBR may consider the expediency of creating a standalone fund to support the financial/banking sector, formed via contributions of financial intermediaries (similar to 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 regulator 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 Central Bank said.