Russia’s central bank is about to bail out its second major bank in a month, as bad debts take a toll on the local finance sector. Reports cited the effects of an economic slowdown and Western sanctions, plus irresponsible growth.
7th and 12th Largest Banks Get Government Billions
Two multi-billion dollar bailouts in such a short time will stoke fears of a wider systemic risk in the Russian financial system. However some analysts said the central bank’s action is a sign it’s serious about fixing long-understood problems.
The latest bailout recipient is B&N Bank, Russia’s 12th-largest lender by assets. That’s just 2 percent of the country’s total banking system, making it “not systematically important”, according to Reuters.
Bloomberg called B&N “one of the top five closely-held lenders”. The bank, which officially called for the bailout last Thursday, had previously been tasked with taking over other troubled banks. Since 2014, bad debts have piled up in the wake of U.S.-led economic sanctions and an oil price collapse.
It follows the near-collapse of Otkritie, Russia’s seventh-largest bank by assets, after a bank run in August. The central bank agreed to take a minimum 75 percent stake.
The Wordwide Bank Bailout Decade
Bank bailouts are of interest to bitcoin enthusiasts and the anti-central/government banking economics they tend to prefer. Satoshi Nakamoto encoded a headline from The Times from 3rd January 2009 in the hash of the first-ever Bitcoin block, reading: “Chancellor on brink of second bailout for banks”.
The public had discovered several large private companies were now officially “too big to fail”, and would be fed with taxpayers’ money to stay afloat. Resentment over the bailouts only increased after large banks appeared to continue their excesses, refusing to lend to businesses while cementing their powerful positions.
Meanwhile, CEOs of bailed-out banks like JPMorgan Chase’s Jamie Dimon continue to rail against Bitcoin, calling it a “fraud”. JPMorgan itself received a $12 billion USD central bank handout in 2008 to cover its bad debts.
Economic Sanctions Against Russia Worsened Existing Problems
Western economic sanctions against Russia began in early 2014 when the country annexed the Crimean peninsula and was accused of backing separatist rebel fighters in eastern Ukraine. That conflict is ongoing, and sanctions have increased several times since then.
Both the E.U. and U.S. slapped bans on Russian state banks taking out long-term loans, plus military and other equipment sales. Russian oil companies Gazprom Neft, Rosneft and Transneft were targeted, and sanctions were designed to affect firms with senior government connections particularly.
Given Russia’s unique economic circumstances, there are few fears its problems will spread to the wider world. Russian banks had been accused of bad business practices, growing too quickly through acquisitions of smaller banks, insurance and other businesses.
The central bank had previously bailed out Bank of Moscow (its fifth-largest) to the tune of $6.7 billion USD in 2011.
Should governments bail out troubled banks? Let’s hear your thoughts.
Images via Pixabay, Yahoo Finance, Bank of Russia