In the run-up to the coming autumn Duma session we will come up with a package of amendments to legislation to allow the Bank of Russia to set up a special-purpose Banking Sector Consolidation Fund. This fund would be a participant in the equity of banks under resolution. Also, a dedicated management company would be created to provide operational management to a bank under resolution. In such a scheme, the central bank would oversee the bank turnaround programme. Capitalisation support would come in quickly, available immediately; where necessary, resolution would involve both reorganisation and merger. Either of these would be followed by sale of banks, recovered to a satisfactory financial condition. Thanks to the new model to migrate to, the processes of bank resolution are sure to become less inexpensive, faster, more manageable and overall more effective. We will see banks under resolution being reorganised so as to ensure that financial recovery yields maximum results and raises investment appeal of such banks. Concurrently, this will predetermine optimisation of the banking sector’s structure. Both commercial banks and private investors would be able to enjoy the outcomes as they acquire well performing banks and those with capital top-up. Apparently, the mechanism will be the subject for discussion with the bank community. Looking forward, I would like to tell you that we have looked into potential risks this approach involves. Here are our key findings. The risk of banking sector becoming nationalised. In our understanding, we are running no such risk, for two reasons.

Despite the role of seasonal factors, this slowdown is more apparent compared to that of recent years (Chart 3). Accordingly, the exchange-rate-adjusted annual credit growth rate is expected to converge at around 25 percent by year-end, as envisaged. In the baseline scenario presented in the July Inflation Report, global economic activity was assumed to continue to improve gradually; however, it was also highlighted that downside risks on the global economy were growing stronger. Indeed, right after the publication of the Report, risk perceptions deteriorated rapidly and debt problems in the euro area further intensified changing the baseline scenario. In response, we introduced a comprehensive package of measures to contain the potential adverse effects of these developments on financial stability and economic activity. The objective of these measures was to supply liquidity to markets in a timely, controlled and effective manner in the event of financial turmoil that may be driven by developments in the global economy. Moreover, we opted for a modest cut in the policy rate in order to contain the risk of recession in domestic economic activity that may be posed by escalating global economic problems. Moreover, Turkish lira required reserve ratios were adjusted in order to extend the maturities of liabilities of the banking system (Chart 6). The mounting uncertainties facing the global economy since the July Inflation Report and accelerating capital outflows from emerging economies called for a series of measures intended to contain fluctuations in the foreign exchange market.