Russia: Otkritie Emergency Liquidity Program, 2017

In July and August 2017, Otkritie Bank, Russia's largest privately owned bank, experienced deposit runs related to concerns over Otkritie's recent acquisitions, including a large, troubled bank and insurance company. The runs prompted Otkritie to heavily rely on the Central Bank of Russia's (CBR's) standing fixed-rate repurchase agreement (repo) facility to meet the outflow. By July, Otkritie had RUB 338.1 billion in outstanding repo loans from the CBR. As depositors continued to withdraw funds in August, the CBR provided Otkritie with an unsecured emergency loan of RUB 330 billion while Otkritie continued to borrow from the repo facility. On August 29, 2017, the CBR announced a rescue plan for Otkritie. In the announcement, the CBR pledged to become Otkritie's main investor using a newly created resolution mechanism wherein the CBR would take at least a 75% equity stake using funds from the Fund for Banking Sector Consolidation, a subsidiary of the CBR. The bank would remain open, but management would be replaced by a provisional administration composed of CBR employees. By September 1, Otkritie had RUB 1.1 trillion in borrowings outstanding with the CBR, including RUB 682 billion from the repo facility, RUB 330 billion from the unsecured emergency loan, and RUB 55 billion in other loans. In September, Otkritie repaid its outstanding repo debt and the CBR placed an additional RUB 380 billion deposit in the bank. In December 2017, the CBR purchased RUB 456.2 billion in newly issued common shares (99.9% of common shares) to cover Otkritie's capital deficit, allow it to meet regulatory capital adequacy requirements, and extend financial assistance to Otkritie's related entities. By February 2018, Otkritie repaid the August emergency loan to the CBR. In March 2018, the CBR decided to restructure Otkritie via a merger with B&N--a smaller, bailed-out bank. This case is part of our series on ad hoc emergency liquidity programs and focuses on the unsecured emergency loan in August and the additional deposit in September. The purpose of these measures was to cover the outflow of deposits and keep the company operating until the government could complete its recapitalization and restructuring.