30 Nov 2022 09:56

Possible future banking sector development fund to only help banks in event of force majeure - CBR

MOSCOW. Nov 30 (Interfax) - A proposed banking sector development fund, the creation of which the Central Bank of Russia (CBR) is now considering, would essentially be a collective capital reserve in addition to individual buffers that would be used only in the event of force majeure circumstances, the CBR said.

More details about the concept of the fund were laid out in the draft guidelines for the development of Russia's financial market in 2023-2025.

"Growth of systemic risks in the banking sector is not being seen at the moment, but the experience of past years showed the importance of having a capital buffer and possible instruments to cover risks. For example, depending on the scale of problems, direct recapitalization through acquisition of shares and/or subordinated obligations or provision of capital guarantees giving the right to receive support when the organization's financial position deteriorates might be considered," the draft said.

Once the economy adapts to external shocks, the CBR plans to discuss with the market the advisability of creating a banking sector development fund that would be formed with contributions from banks like the Deposit Insurance Fund. In future, one of the fund's roles could be to support the banking sector in stress situations.

"Essentially, we are talking about creating a collective capital buffer for banks in addition to the individual ones formed with the buffers on statutory capital adequacy ratios. And support will be provided only if the losses of financial institutions are due to force majeure circumstances, and are not the result of previously applied risky business models," the CBR said.

Support measures should not cover losses due to the ineffective policies of owners of individual financial institutions, thus worsening the competitive positions of those financial service providers who applied a more cautious and balanced approach to risk management, the CBR said.