Outside the Beltway

Another Financial Crisis: a Russian One

Dave Schuler · Tuesday, September 16, 2008 · 2 comments

A bit of a crisis has emerged in the Russian financial system:

Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.

The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis.

Earlier, trading had been suspended on both the Micex and RTS stock exchanges as investors ignored assurances by Russian officials and a cycle of distrust set in amid liquidity fears.

Margin calls forced domestic traders to liquidate positions and brokers pulled credit lines. At least one Moscow bank failed to meet payments.

The rouble-denominated Micex Index closed 17.75 per cent down, the sharpest one-day drop since the August 1998 financial crisis, while the dollar-denominated RTS index closed down 11.47 per cent, its lowest lvel since January 2006.

The central bank has injected something like $20 billion into the Russian economy in various forms in response to the crisis, a gargantuan amount relative to the total size of the Russian economy which is about 1/7th ours.

Interesting times.