Banking Panic In The Ukraine

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THE Abkhazian and South Ossetian parliaments have been unanimously granted permanent observer status at the 34th session of the Parliamentary Assembly of the Belarus-Russia union state in Moscow.

The MPs considered applications from the Abkhazian and South Ossetian parliaments.

The discussion did not last long, and the MPs only had one question: whether it would be legally correct to take a positive decision, as Belarus did not officially recognise the countries’ independence.

A Belarusian representative in the Parliamentary Assembly and chairman of the foreign policy committee, Mikalay Charhinets, said that the decision to grant the Abkhazian and South Ossetian parliaments permanent observer status ‘is by no means an act of pressure’ and that ‘this is the issue of parliamentary cooperation’.

Charhinets also said that he sees no problem in granting the status to the Abkhazian and South Ossetian parliament!

As a result, Parliamentary Assembly members unanimously voted for the decision.

Meanwhile, the Russian government has announced that it will rescue only a few of the private banks that have gone bust because of the world capitalist crisis.

‘If necessary, we are ready to increase the capitals both of state banks – Sberbank, Vneshekonombank, Rosselkhozbank, – and private banks,’ said a statement.

It added that investment in private banks will be temporary and then the state’s shares will be privatised. ‘We have no plans to increase the state sector in the economy,’ the government statement stressed.

However, this does not mean that all 1,200 private Russian banks will be rescued.

‘It is not feasible to support 1,200 or 500 banks. We are talking about key banks which have earned a good reputation,’ a government official said.

The government is not planning to suspend customers’ right to withdraw their money prematurely. ‘We are not planning measures of this kind. This is out of the question. This cannot be,’ the official said.

Meanwhile the Ukrainian financial markets are in a state of panic with the withdrawal of deposits forbidden and the Ukraine going cap in hand to the IMF for billions of dollars of ‘stabilisation’ aid.

The National Bank of Ukraine has taken some tough steps to calm down its financial markets, a business daily has reported.

Quoting sources in the bank, the paper said that it has banned early withdrawals of deposits.

The National Bank of Ukraine also recommends that the president set up a stabilisation fund to increase state guarantees for depositors.

The article by Ruslan Chorniy entitled ‘Anti-failure medicine: the National Bank resorts to tough measures to save the banking system’, was published in the Ukrainian edition of Russian business daily newspaper Kommersant on 13 October.

The article said that ‘Kommersant had learnt that the National Bank of Ukraine (NBU) has passed a resolution meant to keep the banking system from collapsing after the population withdrew 3bn hryvnyas in deposits in one week.

‘From 13 October, the NBU is forbidding banks to release deposits early or increase lending and has frozen the size of their assets.’

The NBU has suggested that in order to lower panic, the president Viktor Yushchenko should establish a stabilisation fund out of NBU profits, which will increase deposit guarantees from 50,000 hryvnyas to 200,000 hryvnyas.

The newspaper added: ‘Without such a document, the country would see a row of bankruptcies, bankers believe.

‘However, at the same time they feel additional measures need to be passed, since the regulator’s resolution could be contested in courts.

‘After holding consultations on Friday with President Viktor Yushchenko, members of the cabinet and managers of the country’s largest banks, with whom NBU head Volodymyr Stelmakh spoke on Saturday 12 October, the NBU passed a resolution severely limiting banks’ activities, members of the meeting told Kommersant.

‘First Deputy Chair of the NBU Anatoliy Shapovalov confirmed the resolution had been passed, but declined to provide any details.

‘According to information at Kommersant, the resolution is similar to measures adopted during the crisis in November and December 2004 and, like then, was not registered in the Justice Ministry.’

The NBU is to publish the document today.

The main limitation in the current NBU resolution is a six-month moratorium on early withdrawals and growth in credit portfolios. ‘The volume of assets has been frozen as of 13 October’, a source in the NBU told Kommersant, Banks can issue credit, but within the bounds of other credit being paid off and by lowering the stakes in their security portfolios.

‘People in the NBU note that in contrast to the 2004 resolution, the words “forbid releasing deposits” are not expressly written, because pursuant to the Civil Code, a depositor has the right to withdraw his deposit early.

The NBU wrote that ‘banks are not allowed to execute obligations to attract funds before the end of the period in which obligations are fully fulfilled independent of the counteragent’s category.’

A NBU official told the newspaper, ‘That is, no matter who took the money, inside Ukraine or outside the country, these obligations cannot be met prematurely. In cases where passive assets at banks fall, their managers should first appeal to stockholders, and only after that to the NBU, for refinancing.’

The newspaper states: ‘The NBU was prompted to take these decisive steps by the panic among people who began to withdraw their deposits en masse from all banks, and by the strong information attack on Prominvestbank, where the NBU was forced to impose temporary administration.

‘According to one participant in the meetings with Mr Stelmakh, in just the past eight days, banks deposit portfolios fell by 3bn dollars (on 1 October this portfolio was 340.1bn hryvnyas, or 69.96bn dollars).

‘People who saw banks going under every day in America and Europe panicked.

‘There were a lot of provocations when information was disseminated saying one bank or another was bankrupt.’