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Here are 3 ways Russian banks are vulnerable to a crisis
Published: Nov 13, 2014 5:31 p.m. ET
Shades of the 1998 Russian debt crisis?
Reuters
Maybe Russian President Vladimir Putin can use his personal wealth to prop up the economy if another crisis happens?
By
JosephAdinolfi
News editor
NEW YORK (MarketWatch) — The rapid depreciation of the ruble brings back shades of another, albeit more dramatic, decline in Russia’s currency.
In 1998, that currency strain caused the Russian economy to collapse, igniting a chain of events that eventually resulted in Russia defaulting on its debt payments, which in turn led to the notorious demise of Long Term Capital Management.
Approximately 16 years ago, the Central Bank of Russia was forced to spend its foreign exchange reserves to prop up the worthless ruble, which caused what was effectively a run on the central bank. At the time, the bank was forced to spend billions to maintain an unsustainable artificial exchange rate with the dollar.
A similar collapse doesn’t seem imminent: Russian banks are better capitalized, Russian state’s balance sheet has strengthened, and the central bank has options to help support the currency should it slide to dangerous levels.
However, those points haven’t prevented currency watchers from pointing out that Russia still could be vulnerable to currency-induced strife, if the ruble continues its stead descent.
A research note from Capital Economics, released on Tuesday, outlined three ways the Russian financial system could be vulnerable to a falling ruble:
And mounting tensions in the Ukraine, with Russia at the center, in spite of political sanctions,, make the ruble look exceedingly shaky.
The 'mighty' ruble is worth two U.S. pennies ! HAHAHAHAHAHAHA !!!!!
Published: Nov 13, 2014 5:31 p.m. ET
Shades of the 1998 Russian debt crisis?
Maybe Russian President Vladimir Putin can use his personal wealth to prop up the economy if another crisis happens?
By
JosephAdinolfi
News editor
NEW YORK (MarketWatch) — The rapid depreciation of the ruble brings back shades of another, albeit more dramatic, decline in Russia’s currency.
In 1998, that currency strain caused the Russian economy to collapse, igniting a chain of events that eventually resulted in Russia defaulting on its debt payments, which in turn led to the notorious demise of Long Term Capital Management.
Approximately 16 years ago, the Central Bank of Russia was forced to spend its foreign exchange reserves to prop up the worthless ruble, which caused what was effectively a run on the central bank. At the time, the bank was forced to spend billions to maintain an unsustainable artificial exchange rate with the dollar.
A similar collapse doesn’t seem imminent: Russian banks are better capitalized, Russian state’s balance sheet has strengthened, and the central bank has options to help support the currency should it slide to dangerous levels.
However, those points haven’t prevented currency watchers from pointing out that Russia still could be vulnerable to currency-induced strife, if the ruble continues its stead descent.
A research note from Capital Economics, released on Tuesday, outlined three ways the Russian financial system could be vulnerable to a falling ruble:
- Russian banks have far more dollar-denominated debts than they have dollar-denominated assets. So a weakening ruble will inflate the value of their debts vs. their assets, making it more difficult for them to afford their debt service.
- Companies and individuals who took out loans from Russian banks denominated in foreign currency will find it more difficult to pay the bank back as the relative cost of their debt service grows as the ruble declines. This could cause the number of debts in arrears to spike, adding pressure to Russian banks’ balance sheets.
- Russians, concerned that the ruble’s falling value could wipe out their savings, could withdraw their rubles from the banking system en masse and convert them to dollars, leading to a good ol’ fashioned run on the banks.
And mounting tensions in the Ukraine, with Russia at the center, in spite of political sanctions,, make the ruble look exceedingly shaky.
The 'mighty' ruble is worth two U.S. pennies ! HAHAHAHAHAHAHA !!!!!
