18 february 2016

Jus Aureum's attorneys at law about bail-in mechanism as applied to deposits of individuals in Russia

The press last week resumed discussions of the possibility of launching the bail-in mechanism in Russia.  What triggered the mass media’s passions was a proposal by the Ministry of Finance to introduce bail-in procedures for depositors in troubled banks, whose deposits were in excess of 100 million Russian rubles each.

The bail-in mechanism implies an involuntary conversion (“seizure”) of third-priority creditor claims into subordinated loans(whereby the depositor becomes the bank’s long-term creditor (for no less than five years), with no chance of early repayment) or the bank’s charter capital fund (with the depositor becoming the bank’s shareholder). 

Considering that no draft amendments to relevant legislative acts have been published as yet, legal risks for depositors can hardly be objectively assessed.  Even so, one can safely presume that those depositors who have been forcefully turned into shareholders will be held liable for the obligations of their banks in distress, having not been involved in the making of their decisions which led to adverse financial consequences, if no special exemptions in this field are put firmly in place.  

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