Updated April 2, 2008

   The Russian government has taken the decision to direct available federal budgetary funds to fight against the liquidity crisis of the banking system. Prime Minister Viktor Zubkov signed the proper order, which could be applied already in the mid-April. In the Ministry of Finance and in the banking association consider that the April liquidity crisis could be avoided in this case.

   The White House reported that Prime Minister Viktor Zubkov approved the "Order of federal budgetary funds placement to bank deposits" by the government decree #227 as of March, 29. According to it, the budgetary funds can be placed "in credit organizations having the general license of the Central Bank (CB) of the Russian Federation to realize bank transactions and private funds no less than RUR 5 billion and not having debt in arrears under bank deposits, earlier placed using the federal budget funds". Also, the banks’ credit rating should not be lower BB- by the classification of Fitch or Standard & Poor’s ratings agencies. Another obligatory requirement is participation of a credit organization in the obligatory insurance scheme of deposits. The Ministry of Finance will be responsible for work organization concerning budgetary funds placement to bank deposits, and the Federal Treasury – for funds placement directly.

   We will remind, that within the meeting with Viktor Zubkov the Russian Bankers’ Association demanded to accelerate the budgetary funds placement in order to fight against the liquidity crisis of the banking system at the beginning of February, 2008. The bankers were waiting the crisis already in March-April. "Due to the unexpectedly high expenditures of the federal budget and the slowed capital outflow, we managed to avoid considerable deficit of liquidity in March", says Yaroslav Lisovolik from Deutsche Bank.

   CB first deputy chairman Alexey Ulyukaev declared that "the peak period when banks need liquidity at the end of April, and when large tax payments are expected, will pass without problems". According to him, banks have three options to overcome crisis. He offered the banks to reduce the volume of deposits and funds on corresponding accounts in the Bank of Russia from the current RUR 700-750 billion to RUR 500 billion. He also promised the banks the CB refinancing in size of RUR 1 trillion. Third instrument is "placement of temporarily available funds of the Ministry of Finance at the specially selected banks-agents". However, this can be unnecessary, as Alexey Ulyukaev considers that in the 20th of April the peak liquidity need would total less than RUR 0,5 trillion. The minister of finance Alexey Kudrin reported "We wanted to hold the first auctions at the beginning of April, but there is no keen necessity now, as we expect it in the mid-April".

   The bankers are satisfied. The president of Russian Bankers’ Association Garegin Tosunyan declared "We got used to knock for years, and now they have worked quickly and good". Chairman of MDM-Bank directors’ board Oleg Vyugin said that placement of the rest of the funds under the certain percent in bank deposits is the regular phenomenon in terms of its transparency for a market. For example, according to Mr. Vyugin, the experience of St. Petersburg administration that has placed RUR 5,5 billion of the city budget funds under 9,79-6,31% per annum in March, showed the large private interest of banks in the budgetary money. The member of State Duma committee of the financial market Pavel Medvedev declared that today safety coefficient of CB is two times more than in 2007; therefore there will not be the crisis as such.