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Monday, July 16, 2018

National Bank of Ukraine develops mechanism for providing emergency liquidity support to banks

The National Bank of Ukraine has developed a mechanism that would allow it to provide liquidity to the country's banks and maintain stable operation of the banking system in the event of an emergency.

Under the mechanism, the NBU would grant refinance loans to banks that have seen a run on household time deposits for the term of up to 360 days through extraordinary liquidity-providing tenders.

The decision to hold the tenders will be based upon an analysis of the money market situation and the state of the banking system liquidity, the bank said.

The mechanism for providing emergency liquidity support was approved by Resolution of the National Bank of Ukraine Board No. 48, dated Feb. 6.

"I want to stress that today we are not seeing a critical outflow of funds from banks. This mechanism is intended principally as a preventive measure. We want banks and the people of Ukraine, to be confident that, whatever happens, the banks are capable of fulfilling their obligations to citizens in a timely fashion and in full," Olena Shcherbakova, the director of the department of monetary policy, said.

Among the stipulations are that the maximum amount of funds that a bank can obtain through the mechanism cannot exceed the amount of household time deposits withdrawn from the bank over the period established by the NBU, Ukrainian government bonds or foreign exchange can be used as collateral for refinance loans granted through the mechanism and an interest rate on refinance loans is set at the level threefold higher than the discount rate of the NBU.