Seven questions about the new Bank resolution mechanism: what will change?

Vasily Pozdyshev

Photo: Dmitry Lebedev / Kommersant

The Central Bank announced that prior to the adoption of the new law on reorganization to save failing banks, will not. To flood the market with “free money” regulator not ready, and new investors are able to solve real problems, sees. However, the market has issues, and most of the Central Bank

The details of how the situation will develop with the rehabilitation of problem players in the Russian banking market, on Monday, March 20, at the round table in the state Duma, said the Chairman of the Bank of Russia Vasily Pozdyshev. As followed from his statement, if the Fund act of consolidation of the banking sector will not be accepted, rehabilitation under the old rules (via credit to Agency on insurance of contributions (ASV), and from banks-sanatory) will not be held: no money, no the investors, capable to solve other people’s problems.

“With the old instrument we are no longer able to carry out a new reorganization. First, we will no longer give free money to the extent that such rates and on such terms. Second, we do not see in the market of private investors, who would be able to take responsibility for the new financial problems,” he said.

A bill to Fund the consolidation of the banking sector is now preparing for the second reading in the state Duma. Initially it was assumed that after its adoption loans the sanatory the rehabilitation of problem players will be completely replaced by direct investment in the capital by the Bank of Russia.

The position of the Central Bank Vasily Pozdyshev has strengthened both old and new arguments. At the same time the representative of the Governor for the first time officially commented on the details revealed in the bill the ability to preserve the ability to lend to banks-sanatory.

Why do we need a new concept of rehabilitation?

According to the Deputy Chairman of the Central Bank, concessional lending, used in the old scheme no longer refers to neither monetary policy nor the principles of financial stability. So, to close negative net assets of 10 billion rubles., in the old system you need to issue 15-16 billion rubles, and in the new economic realities of RUB 20 billion and more, he said. The introduction of direct recapitalization of troubled banks by the Bank of Russia will allow to close a hole of 10 billion rubles. equal to the amount allocated to capital.

Whether there will be loans the sanatory?

The Bank does not intend to completely abandon the old approach. “We fully admit that after some amount of time he can also be in demand or in special cases”, — declared Vasily Pozdyshev. With the help of loans, the regulator plans to support investors who purchase shares of reorganized Bank, such as liquidity. He explained that the Fund consolidation may on an equal footing to participate in the rehabilitation of banks with private investors. The terms of the financing will be tough: funds will be allocated on market terms, and not on grace as before. The use of loans by the investor together with the entry for the new Fund consolidation in the capital of the rehabilitated banks will increase the cost of rehabilitation, but in General compared to the old scheme the savings will be at least 30-40%, said Pozdyshev.

Who will manage recovery?

Manage distressed assets in the capital of which will consist of the Central Bank, will deal with the management company (MC), the only founder of a speech by the Bank of Russia. She will assume the responsibilities of the ACB with regard to the prevention of Bank failures. As said Vasily Pozdyshev, the UK will have much more authority in the management of banks than the agencies. “The DIA has no specialized staff for the management of banks or their own funds for this,” he said.

As the Central Bank intends to avoid conflicts of interest?

The regulator has already started the selection of top managers to the management company, although it has not yet been created. According to Vasily Pozdyshev, it is expected that the company will at the initial stage to be 50-60 people.

The leaders of the Central Bank with Supervisory functions will not work in its subsidiary — management company. According to the plan of the Bank of Russia UK will serve as the governing body reorganized the Bank, while the operational management will remain in the Bank.

Will the fate of the banks to decide quickly?

The tool allows to quickly solve the problem of tottering banks, reducing the time of entering into them, to reassure the Central Bank. In particular, it is preparing amendments to the legislation that will impose a moratorium on enforcement of creditors simultaneously with the interim administration. Currently, there are situations when the Central Bank is already reason to introduce an interim administration in the troubled Bank, and the right to a moratorium there. In addition, it is planned that the moratorium could be introduced not only for the payment of money to the creditors, but also on non-monetary claims, for example on the disposal of property.

When and how the rehabilitation will be completed?

However, according to calculations of the Central Bank, with the improvement of the situation in the banking sector in five to seven years it will start to come investors. The selection of buyers of troubled banks have passed through a new procedure of recovery will be carried out through open competition. In it, the plans of the Central Bank will be able to participate, both physical and legal persons. To buy shares in banks after the rehabilitation will not be shareholders, who owned more than 1% of the shares within three months preceding the date of approval of the plan of reorganization.

What will be the DIA?

After the establishment of the Fund the consolidation of the banking sector on the basis of the ASV, the Agency will continue to monitor the recovery of taken them earlier on Bank rehabilitation. The Chairman of the Central Bank noted that the Bank considered the possibility of switching all of the existing sanctions on the Fund consolidation, but found it impossible. “This would lead to significant risks for the financial system,” said Pozdyshev.

How do you assess the innovation market participants?

Track issues, revitalizes the banks in the new approach will be easier, says senior Director Fitch Ratings Alexander Danilov. “Under the current scheme reorganized the player has the right to violate norms without the risk of license revocation for the term of the loan (ten years or more), thus attracting unscrupulous investors who want to unload on him with their distressed assets. A new resolution mechanism that allows to avoid: reorganized the Bank will immediately recapitalized and will comply with all regulations,” he said.

However, corruption risks remain under the new scheme, said managing Director for Bank ratings rating Agency RAEX (Expert RA) Stanislav Volkov. “If the Bank of Russia will control he created a management company, need more external oversight mechanisms to mitigate these risks, which in the new concept are not visible,” — he said. The need for tighter controls and a clear regulatory procedures agreed and the auditor of the accounts chamber Andrey Percan. He reminded that currently establishes a procedure for the selection of investors in anticipation of the reorganization, however, in some cases, as shown by the test chamber, the investor established outside of this procedure. “As a result of Tatfondbank (which itself was a turnaround. — RBC’s) license was revoked. In our view, played a role in the violation of the selection procedures and that the Bank of Russia with a long delay approved the requirements to the investors,” he Percan.