Mamayev Kurgan

By: John Mackenzie | Thu, Jul 8, 2004
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Motherland Russia is calling once again, her banking system an open cry shouting West.

This morning's latest issuance sounds a bit like John Snow bull horning the dollar in order to avoid an untimely, pre-election attack, but very little nowadays is it appears.

U.S. Investors Trust Russian Bank Crisis Will Resolve Itself

U.S. investors believe that the recent banking crisis in Russia is a show of unfounded emotions. The investors are confident that the Central Bank authorities will be able to solve the problem and calm the market, said Blake Marshall, vice president of U.S.-Russia Business Council in an interview to Russia 's RIA Novosti agency. USRBC unites more than 300 large- and medium-sized private U.S. companies that work on the Russian market.

According to Marshall, the tension which led to the liquidity shortage is short-term. He also said that in his opinion the existing situation is for the most part an emotional reaction from the market. The Council's official went on to say: We don't see any fundamental economic reasons to worry about the possibility of banking collapse.

At the same time Marshall stressed that the events of recent days and weeks once again show the necessity of carrying out further reforms in the Russian banking sector. This is a reminder to all, that the banking sector needs a restructuring that would allow the banks to really perform the functions of financial intermediaries. This task won't go away, said Marshall.

Don't know about the rest of you, but I am yet to hear: " U.S. investors believe that the recent banking crisis in Russia is a show of unfounded emotions." Instead, comparisons to 1998 are made with the grim reminder that the contagious nature of that crisis spread very quickly in a matter of weeks.

This go around is cloaked in high crime, with money laundering at the supposed core of the reclamation of banking licenses. In the Financial realm, it is simply an issue of an illiquid banking system on the verge of yet another dramatic collapse, but how did this dynamic set itself in motion?

Bad loans in the Inter-Bank Market are reported to be the culprit, a game of "hide the cheese" can only play on for so long before a counterparty refuses the stench of the cheese platter. Complicating this crisis in liquidity is a clearly defined pattern of consolidation attempts by Russia's Central Bank.

Given the praise lauded upon the Russian Banking System in March of this year, one must wonder what has transpired. Clearly, Bank Reserve requirements are not halved due to wellness. It appears the Russian Central Bank has begun to backtrack from it's attempted purge of Laundromatic Banks having grossly underestimated it's effect upon CONfidence.

Sodbiznesbank and CreditTrust liquidations, although smaller in scope of operations, clearly sent a signal to an already shaken foundation, not six years young. Yet, larger Banks such as Alfa and Dialog-Optim are screaming foul play in attempted hostile takeovers of their asset bases for Kopeks on the Ruble. This is lent credence by the Central Bank announcement on July 7 that Guta Bank, with half a million private clients, "may" be bought by state-owned Vneshtorgbank. Banking consolidation does, in fact, lead to even broader powers and control, so it's no stretch to wonder, if by design, the entire crisis was not the fabricated in order to tip the ministry of "word doctors" hand at the Russian Central Bank:

No Banking Crisis Says CB Chief

Chairman of the Russian Central Bank, Sergei Ignatyev, speaking at a press conference on Friday, June 18, said that the situation with ruble liquidity on the Russian inter-bank loan market is stabilizing and that a banking crisis in Russia is highly unlikely. "We don't have any problems," Ignatyev said.

According to CB's Chairman, the Russian banking system is currently "stronger than it was two or three years ago, and the likelihood of a banking crisis is extremely small, and with time it will get to be even smaller". The situation on the inter-bank loan market is gradually getting back to normal and the ruble liquidity is now higher than usual for this period of time, he said.

Ignatyev pointed out that the Central Bank regularly carries out refinancing transactions with the banks, which also helps to stabilize the situation with liquidity. Earlier this month Deputy Chairman of CB Andrei Kozlov said that the Bank or Russia will refinance commercial banks to the necessary levels if the inter-bank loan market continues to be stuck in a rut.

As MosNews reported earlier, the Russian inter-bank loan market was hit with a shortage of liquidity after CB recalled a banking license from Sodbiznesbank on charges of money laundering. The following voluntary liquidation of another bank, CreditTrust, which was believed to have the same owners as Sodbiznesbank, and which faced a rapid withdrawal of assets by its clients, gave other banks serious jitters, and for a while the Russian inter-bank loan market virtually stopped all operations, as the banks held tightly to their assets and refused to credit each other.

Apparently, one man's crisis is another's folly.

Wall Street would refer to this as the "Roll Up."

Stand back, as it's certainly going to be interesting. Economic regimes 'round the Globe appear to faltering by design, by an "invisible hand" or perhaps by their own. The Russian Oligarchs are being driven out by the Statist powers that be accused of Wild Cat operations in Energy, Mining and now Banking.

We will have to watch and see where the IMF lines up this go around, as Mother Russia's handlers appear to be barking at her predators.


Author: John Mackenzie

John Mackenzie

John Mackenzie manages private capital.

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