Major depositors will offer two options the “haircut” of their deposits


Major depositors will be given an advantage in the choice of instrument equity shares or subordinated loans, said Wednesday, 3 February, the Chairman of the Central Bank Mikhail Sukhov, transfers “RIA Novosti”. As explained Sukhov , the advantage of subordinated loans may be at market rate, stock it is not obvious. “Besides, the debt market more understandable and less volatile than the stock market. The action in the past, the problem Bank is worth less than its face value”, he said, adding that if the subordinated loans will be less than willing to receive them, they will be prorated. Companies that participate in the Bank bailout, will receive an instrument of equity as a residual.

That the Central Bank allows for the participation of private investors in the procedure of bail-in (forced conversion of creditors of the third turn in subordinated debt or share capital of the Bank), announced this week the first Deputy Chairman of the Central Bank Alexey Simanovsky. Earlier such a possibility was reported by Deputy Finance Minister Alexey Moiseev, saying that the conversion of private deposits can be spread over Bank deposits of 100 million rubles from the Central Bank supports this threshold. “A man who earned 100 million rubles. must have certain professional skills in the economic sphere, to analyse the activities of the Bank”, — said Sukhov.

According to the Agency for Deposit insurance and 1.7% of creditors of banks, which the Central Bank revoked the license in 2015, not fully covered by insurance. The number of depositors of these banks amounted to $ 1.7 million, and 103 of them the amount of claims was higher than 100 million rubles.

How does the bail-in in the US and Europe

The idea to shift the burden of rescuing the near-bankruptcy of banks from the state to their creditors, originated in 2009, when experts began to examine the devastating consequences of what happened the year before bankruptcy of a major U.S. Bank Lehman Brothers. Then began seriously to analyse the mechanism of bail-in, which is a procedure in which to rescue troubled banks are forcibly involved bondholders and depositors.

Two approaches

USA in 2010 adopted the “Dodd — Frank”, which were spelled out new rules for financial rehabilitation of credit institutions. According to the Federal Corporation on insurance of Bank contributions (FDIC) has received the right, taking the Bank under his control, to transfer the activities of the new organization, or even eliminate, the losses “to the extent necessary” are subject to distribution between shareholders and creditors. Plans for “orderly liquidation” of financial institutions, eliminating the occurrence of systemic risks for the global financial system, needs to be spelled out by financial institutions — these plans, known as “wills”, are forwarded to the FDIC. Directly the rules of the bail-in were formulated by the American financial regulators in the period 2013-2015.

In the European Union the mechanism of bail-in is effective from 1 January 2016. According to the Directive on the restructuring and bankruptcy of banks, which was approved in April 2014, first fully written off liabilities to shareholders (capital), then capital will be converted obligations to the bondholders and, finally, large deposits of over Euro 100 thousand in Deposits for a smaller amount must remain intact, as they are guaranteed by the state. The Directive also establishes that the authorities can connect to Bank restructuring only after the participation in his salvation will take its shareholders and creditors. Taxpayers ‘ money to rescue the Bank can be allocated only once at the expense of the creditors will be paid 8% of the Bank’s liabilities.

The analyst of Raiffeisenbank Denis Poryvai believes that the major depositor is preferable to choose the conversion option of its contribution in a subordinated Deposit. “In this case, funds are debited in the capital of the second level, and on the Deposit you will receive coupon income. It’s better than nothing,” he says. In the case of stocks, notes Poryvai, a former contributor just have to wait for the sea weather. “Dividends you troubled Bank is unlikely to pay, and if you can actually then sell the shares of the Bank to someone else the same question,” explained the analyst.

Director on Bank ratings RAEX (Expert RA) Marina Musiets says that the subordinated deposits is more liquid than stocks of troubled banks. “He can generate income, then how to calculate the cost shares of the Bank, when something has not executed the obligations, is difficult. Reputation in the market develops over the years,” she notes. According to Mosiec, the risk that the Bank does not fulfill obligations under the subordinated deposits, the minimum — in practice, the regulator rarely revokes the license of the rehabilitated banks.

“Of course, for banks and for the state more preferable variant of conversion of deposits into shares, as it directly affects the capital adequacy ratio of the first level N1.2,” — says the analyst. The shares are included in the Bank’s tier I capital, and subordinated loans in tier II capital. Mosiec recalls that the minimum value of the norm N1.2 now is 6%, while the capital adequacy ratio of the second level (H1.0.) 1 January 2016 has been reduced from 10 to 8%. “To fulfill its banks is easier, because the volume of attracted subordinated loans can be anything. The market is a credit institution, have a sufficiently large gap between the H1.0 and N1.2”, — she explained.