Russia: Lombard and Overnight Loans, 1998

It is useful to think of the CBR’s provision of emergency liquidity during the 1998 ruble crisis as fitting into two periods—pre-default and post-default lending—with August 17, 1998, being the dividing line. The distinction accounts for the way in which the unique monetary developments after August 17 shaped subsequent CBR assistance. Namely, the CBR and government decisions on August 17, 1998, resulted in the unilateral suspension of trading in the secondary market for ruble treasuries and the eventual floating of the ruble’s exchange rate. These changes in the monetary system both expanded the CBR’s ability to provide broad-based lending absent a fixed currency mandate and restricted the available liquidity tools given the suspension of ruble treasuries as financing instruments (CBR 1999a).

Governed by a fixed ruble exchange rate pre-default, the CBR provided restricted liquidity support, needing to both “protect the domestic financial system and prop up the market for ruble-denominated assets” (CBR 1999a). Post-default, liquidity operations largely focused on reviving a frozen domestic payment system (Owen and Robinson 2003, 7).

As the crisis came to a head in August 1998, much of the banking system was effectively insolvent, the payment system and interbank markets were frozen, and many banks had suspended depositor withdrawals in response to runs. The CBR took several measures to provide liquidity relief while authorities delayed large-scale banking resolution until the adoption of necessary legal provisions in 1999 (Owen and Robinson 2003, 121).

Without a secondary market for ruble treasuries, the post-default CBR support needed to fully restore a frozen domestic payment system rather than simply provide relief to a dysfunctional one. In the 1998 annual report, the CBR highlighted the uniquely different circumstances of the pre- and post-default periods by stating the following:

Despite the diverse monetary circumstances in the pre- and post-default periods, this case organizes the lending operations according to facility rather than time period due to the difficulty in isolating lending between periods.

Sharing an overarching goal of restoring the payment system of domestic banks, the two lending facilities, Lombard and overnight/intraday (O/I) loans, differed in the support they provided:

1. Lombard Facility:

The Lombard facility was established in 1996 with two parts: a standing window and a periodic auction. It served as the primary means by which banks could receive short-term liquidity collateralized by government securities (Baliño 1998). As the crisis unfolded, in July 1998, the CBR discontinued the standing, fixed-rate window but continued to provide liquidity through the periodic Lombard auctions (CBR 1999a).

2. Overnight/Intraday (O/I) Loan Facility:

The CBR established this new lending program on June 19, 1998, to replace its traditional overnight primary dealer facility that allowed primary dealers to take out unsecured loans for emergency end-of-day settlement purposes (Baliño 1998; CBR 1999a). The new O/I loan program expedited collateral transactions with government securities, eliminating the need for unsecured overnight loans. The CBR’s 1998 annual report described overnight and intraday loans together as part of a single new refinancing procedure for banks in the regions of Moscow and St. Petersburg. Although the CBR often detailed the operations of overnight lending separate from intraday loans (with far fewer references to the latter), we classify such lending under the common name “overnight/intraday facility” due to the shortage of separate data regarding each component (CBR 1999a).

The CBR introduced intraday lending during the crisis “to speed up the process of urgent replenishment of correspondent accounts . . . , maintain bank solvency and thus avoid a chain reaction of nonpayments in the bank settlement system” (CBR 1999a). O/I loans were available to an expanded group of eligible participants beyond the narrow set of primary dealers. Combined, the new O/I program and Lombard facility lent to 170 commercial banks compared to the 23 primary dealers that had used the unsecured overnight loans. Like the Lombard facility, the O/I loan facility accepted Bank of Russia bills (OBRs) as collateral following the default on ruble treasuries in August (CBR 1999a).

As the interbank credit market broke down in August, the CBR used unconventional overnight loans as a means of keeping eligible banks from defaulting on their CBR obligations. Ippolito (2002) notes that in the lead-up to the August 1998 default the CBR used the O/I facility to continuously roll over outstanding credits from illiquid banks unable to redeem the loans. A Moscow Times article published in October 1998 substantiated Ippolito’s description of the new overnight lending arrangement and claimed that the CBR rolled over credits at below market rates to inject liquidity into a group of undisclosed banks (Rao 1998).

Article 75 of the 1993 Russian Constitution established the CBR’s legal responsibilities, including an exclusive monopoly on domestic currency issue. Additionally, Article 75 stated that “protecting and ensuring the stability of the ruble shall be the principal function of the Central Bank of the Russian Federation, which it shall fulfil independently of other State governmental bodies” (Russian Federation 1993). Often in consultation with the government, the CBR—through de jure independence—dictated monetary operations subject to the currency stability mandate (Johnson 2018, 68).

Article 4 of the Federal Law on the Central Bank established the CBR as organizer of the “refinancing system” (discount of bills for rubles) and “creditor of last resort” for the domestic banks (CBR 1998f). The same law also rendered the CBR responsible for licensing (as well as revoking licenses), supervising, and regulating banks in accordance with other federal laws (CBR 1998f; Johnson 2018, 69).

The 1995 Law on the Central Bank prohibited the CBR from providing direct credits to the government (Owen and Robinson 2003, 128). This prohibition increased the use of ruble treasuries as the financing mechanism for government expenditures (Sutela 1999). The ban of direct lending to the government still allowed the CBR to purchase treasuries and use other methods to indirectly finance the deficit (IMF 1999). For example, in June 1998, when the government failed to raise enough funds needed to pay out its maturing obligations, the CBR “provided overdrafts to the government while redeeming maturing treasury bills from the market” (IMF 1999; CBR 1999a). In another unconventional arrangement, following the default, the CBR injected portions of its foreign currency assets into state-owned commercial banks, such as Vneshekonombank (97% CBR-owned), who then lent these assets to the government to pay its non-defaulted foreign currency liabilities (IMF 1999; CBR 1999a).

In 1998, there was no regulatory agency capable of carrying out restructuring for the widespread insolvency in the post-default banking system. Therefore, the CBR was the body that could best respond to the crisis and did so by providing liquidity using its existing and new policy tools.

In addition to the lending programs that are the subject of this case, the CBR attempted to directly provide ruble liquidity by decreasing the reserve requirements for banks and through large asset purchases of illiquid ruble treasuries from commercial banks (Owen and Robinson 2003, 133). It additionally sought to stabilize the banking system through four other policies: a 90-day moratorium on foreign obligations, significant regulatory forbearance, a scheme to transfer the deposits of ailing, private banks to Sberbank, and multilateral clearing operations to cancel mutual interbank obligations (Steinherr 2004; Ippolito 2002; CBR 1999a).^FNRobinson (2003, 31) also includes foreign exchange (forex) credits as one of the liquidity mechanisms the CBR extended to banks during the crisis. He notes that the CBR provided these forex credits before the default to a limited number of banks whose selection criteria remained undisclosed. Robinson (2003, 134) also presents a table of CBR liquidity injections that includes “forex credits” as one of the largest sources of liquidity in response to the crisis (RUR 13.3 billion outstanding in December 1998); however, these forex credits only appear after the default, starting in December 1998 (See Figure 5 in the Appendix).

Reserve Requirements

At the beginning of 1998, the CBR set a uniform required reserve ratio of 11% for banks with the exception of an 8% ratio for household deposits held at Sberbank (CBR 1999a). With the collapse of the ruble in August, the CBR temporarily stopped enforcing reserve requirements on deposits made in foreign currency. At the same time, the CBR began altering reserve requirements idiosyncratically, per institution, to free up liquidity and return functioning to the interbank system (IMF 1999). Between the end of July and September 1998, required reserves held at the CBR shrank by RUR 17.1 billion (Owen and Robinson 2003, 134). On November 16, the CBR officially set the reserve requirement at 5% for both domestic and foreign currency borrowings to be enforced at year-end (IMF 1999; CBR 1999a). In March 1999, the CBR proceeded to increase reserve requirements in order to absorb excess liquidity (IMF 1999; Owen and Robinson 2003, 31).

Moratorium on Foreign Obligations

The CBR and Russian government on August 17, 1998, the day of default, announced a 90-day suspension of foreign debt payments made by Russian residents. The freezing of foreign payments applied to the “principal on loans with maturity exceeding 180 days, margin payments on [collateralized] loans . . . , and foreign currency forward contracts” (Antczak 2001). Indebted Russian residents eligible for the moratorium included commercial banks; however, the moratorium did not apply to foreign debt owed by Russian governmental bodies, such as the CBR. Total suspended foreign payments amounted to USD 3.1 billion (RUR 19.5 billion in August 17, 1998, terms), of which USD 2.7 billion (RUR 17 billion) were in commercial bank debt (Antczak 2001; CBR 1999a).

Forbearance

The CBR provided significant regulatory forbearance in the wake of the crisis, as evidenced by the many insolvent institutions whose banking licenses were never revoked (Ippolito 2002). When determining banks’ prudential regulatory compliance, the CBR, in October of 1998, allowed the use of pre-crisis capital figures and a pre-devaluation ruble exchange rate (Owen and Robinson 2003, 135).

Deposit Transfer

The deposit transfer program attempted to prevent potential bank runs by guaranteeing household deposits and moving them to the predominantly state-owned Sberbank. The deposits Sberbank received amounted to RUR 7.1 billion by the end of 1998 and RUR 10 billion by the end of the program (Fuchs 2002, 201; Owen and Robinson 2003, 135). This scheme also provided guarantees of foreign currency deposits converted into rubles at Sberbank for an almost 50% below market exchange rate at RUR 9.33 per USD (Owen and Robinson 2003, 135). Foreign currency deposits made up 30% of the total deposits transferred (Fuchs 2002, 201).

Multilateral Clearing Operations

Following the government debt default in August 1998, the CBR conducted three iterations of multilateral interbank clearing (two in September and one in October) in order to mutually cancel overdue payments (CBR 1999a). In total, these mutual debt cancellations cleared RUR 30 billion in otherwise defaulted obligations (Geraschenko 1999).

The CBR’s Board of Directors dictated the mechanics of liquidity offered through the different lending programs. This body was responsible for both setting rates on CBR loans and the determining eligible collateral for liquidity facilities. The Board of Directors also set the haircuts for collateral on Lombard loans, changing the rate twice over 1998. While lending terms were centrally administered by the Board of Directors, the CBR’s 60 regional branches operated the standing facilities where participants requested Lombard and O/I loans under the established terms (CBR 1999a).

1. Lombard Facility:

The Lombard facility, prior to the crisis, allowed banks to apply for loans of up to a maximum one-month term using government securities as collateral, held in a blocked account with the CBR (CBR 1998a). Loans were available to eligible banks at both the standing, non-penalty, fixed-rate window and at biweekly credit auctions subject to minimum rates. In July 1998, the CBR closed the standing window, leaving short-term Lombard liquidity available only through biweekly auctions occurring on Mondays and Thursdays (IMF 1999; CBR 1999a).

The mechanism of crediting banks through the Lombard facility functioned similarly to the repurchase operation of a discount window. However, no assets were bought or sold; rather, the CBR extended loans to banks, blocking the pledged government securities in deposit accounts with the CBR until repayment (CBR 1998a).

2. O/I Loans:

Introduced in June 1998, this facility offered 170 banks in the Moscow and St. Petersburg areas secured loans against ruble treasuries. The CBR set interest rates for overnight loans daily and provided intraday loans free of charge. Like the Lombard facility, O/I loans followed the CBR’s convention of “blocking” collateral accounts to secure such loans (CBR 1999a).

At the start of 1998, the Russian banking system was already quite concentrated with the top five banks accounting for 36% of total assets and the top 50 for 71%. The government-owned Sberbank, the only bank whose deposits the government guaranteed, held three-quarters of all household deposits (IMF 1999).

Before replacing it with the O/I facility in June 1998, the CBR administered an unsecured overnight lending facility for primary dealers. Primary dealers consisted of large Russian banks who made markets in government securities (IMF 1999). In July 1998, there were 23 primary dealers. Other banks could also access short-term borrowing in this new facility, particularly after the CBR eliminated the standing window of the Lombard facility in July 1998 (CBR 1999a).

In the 1998 annual report, the CBR introduced overnight and intraday lending together as a new facility to provide liquidity for bank in Moscow and St. Petersburg. However, in the same report, the CBR reported participants in both the Lombard and O/I lending programs as an aggregate figure across the facilities, stating: “In all, in 1998 the Bank of Russia lent Lombard and overnight loans to 170 banks in 44 regions, to the total amount of 135.7 billion rubles” (CBR 1999a).

Also notable, the CBR made no mention of intraday lending in this statement; most references to liquidity operations in the annual report similarly exclude intraday loans (CBR 1999a). Given the minimal information provided on intraday loans, research could not determine whether any of the details on “overnight loans” also implied intraday lending.

Additionally, the CBR noted that most participants in Lombard loans came from the Moscow, Sverdlovsk, Samara, Kemerovo, and Vologda regions and from the Republic of Bashkortostan (CBR 1999a). While the CBR did not offer additional information on Lombard loan participants in 1998, the 1997 annual report indicated that the CBR extended roughly 80% of the total volume of Lombard loans to banks in Moscow (CBR 1998a).

The CBR funded loans along with the other liquidity injections through money creation and indirectly through taxpayer money (Schaik 1999). In a press release, the CBR disclosed that RUR 61.9 billion in reserve funds were issued during 1998 (CBR 1998e). This figure presumably represents the amount of liquidity the CBR created during the year in the form of bank reserves.

Research has not identified any predetermined allocation amount for the lending programs.

The CBR noted that in 1998 Lombard loans “were the principal mechanism to provide short-term liquidity to banks” (CBR 1999a). The CBR provided month-end outstanding balances at the Lombard facility; in 1998, monthly outstanding liquidity peaked in June at RUR 7.9 billion (CBR 1998b). Aggregate issuance of Lombard loans in 1998 totaled just over RUR 62 billion (CBR 1999b). Figure 2 details the total monthly volume of Lombard loans extended, outstanding balances of the facility by month-end, and number of borrowing banks over the course of 1998.

Research did not discover participation limits for Lombard and O/I loans.

Before the default in August 1998, the CBR’s set interest rates on the Lombard and O/I loans under a commitment to maintain the ruble-dollar fixed exchange corridor; therefore, the rates charged on lending pre-default partially reflected a need to defend the exchange rate amidst speculative bets against the ruble. The promise to maintain a stable ruble compelled the CBR to tighten monetary conditions with interest rate hikes and sales of foreign reserves, evidenced by the 8.2% decrease in the money supply in the first seven months (January–August) of 1998. As a result, when the crisis emerged in June 1998 and banks began to experience deposit withdrawals, it became increasingly costly for the CBR to continue to increase rates on its lending facilities and maintain the exchange rate (CBR 1999a).

1. Lombard Facility:

In December 1997, the CBR stopped varying Lombard rates depending on loan duration and subsequently managed one single Lombard loan rate (CBR 1998a). Throughout 1998, monthly average Lombard rates ranged between a low of 30% in April to 156.2% in August (CBR 1999b).

2. O/I Loans:

The CBR set interest rates for overnight loans daily while choosing to provide intraday loans free of charge (CBR 1999a).

Figure 3 summarizes the main CBR interest rates over 1998, including those relevant to the (a) Lombard and (b) overnight/intrabank lending programs.

1. Lombard Facility:

The CBR publicized eligible collateral on a “Lombard list.” Before the default on August 17, 1998, the CBR accepted all government securities as collateral (CBR 1999a). After the government’s default on government bonds that matured before the end of 1999, the CBR completely stopped accepting these securities as collateral by September 14, 1998. It continued to accept longer-term federal loan bonds—OFZs maturing after 1999—as collateral, but it increased the haircut on these bonds from 10% to 50% (CBR 1999a; CBR 1998b). Also in September, the CBR began issuing its own bills (OBRs), which it added to the Lombard list as collateral eligible to secure Lombard loans (CBR 1999a). The CBR did not stipulate haircuts for loans secured by OBRs; presumably, OBRs did not receive haircuts. The CBR issued no new Lombard credits after September 1998 due to lack of demand.

2. O/I Loans:

The O/I lending program provided collateralized loans to a broader set of commercial banks than the CBR’s unsecured, overnight lending facility for primary dealers, which it replaced. Like the CBR’s other secured lending facilities (Lombard and repo), the O/I loan program accepted government securities as loan collateral prior to the August default. Banks also used OBRs as collateral for overnight loans after September 1998 (CBR 1999a). In the 1998 annual report, the CBR did not include intraday loans in the discussion on OBR liquidity operations; our research could not determine whether any intraday loans were made in the post-default 1998 period.

1. Lombard Facility:

Before the crisis, Lombard loans bore maximum maturities of 30 days through both auction and the standing fixed rate facility. In June 1998, the CBR limited the duration of available loans and reduced the maximum duration of Lombard loans from the standing facility to 20 days, while still issuing 30-day maturities at auction. On July 8, the CBR eliminated the standing window and limited the duration of loans to seven days, offered at biweekly auctions (CBR 1999a). The CBR explained that such decisions to limit the scope of the Lombard facility would hopefully force banks to “evaluate their liquidity more seriously;” by limiting liquidity access, the CBR likely intended for banks to sell foreign exchange holdings and reduce downward pressure on the ruble (Kulakova 1998).

These Lombard terms remained in place until the CBR stopped lending through the Lombard facility at the end of September (CBR 1999b). Figure 4 presents the monthly aggregate issuance of Lombard loans distributed across credit maturity.

Over the course of 1998, the CBR launched several reforms of its supervisory framework. This included creating a new executive committee for coordinating all the CBR’s supervisory tasks as well as consolidating the disjointed operations of licensing, auditing, banks, and inspecting banks (Owen and Robinson 2003, 141). When conducting liquidity operations through its regional branches, the CBR worked with financial and tax authorities to ensure regulatory compliance of banks (CBR 1998e). The CBR also conducted some 4,415 bank inspections—in both scheduled and unscheduled visits—during 1998 through the inspection departments within the CBR’s regional branches. As vulnerabilities in the banking system materialized, the CBR placed inspection and supervision teams in various unnamed Moscow banks for closer monitoring (CBR 1999a).

Despite improvements, as of August 1998, the CBR’s supervisory tools required considerable reform, as did the underdeveloped accounting and reporting practices throughout the banking system; moreover, the CBR listed “the lack of a comprehensive system of banking supervision” as among the main contributors to the banking crisis (CBR 1999a). Banks would frequently develop complex schemes with other counterparties to avoid the CBR’s limits on loan concentration (Fuchs 2002, 148). With minimal supervision and flexible accounting norms, many Russian commercial banks took on excessive risk. Furthermore, “a willingness of the central bank to provide liquidity to the banking system” compounded such issues of moral hazard and perverse incentives for banks (Bonin and Wachtel 2004). Steinherr (2004) similarly highlights the presence of moral hazard as the crisis materialized in August 1998 when the CBR permitted regulatory forbearance on top of the already weak prudential supervision; the CBR’s provision of cheap liquidity without being able to assess the true financial situation of borrowers incentivized banks to take risks and “gamble for resurrection” (Steinherr 2004).

As a result of the total liquidity injections, including the rehabilitation lending to large banks and extension of credit to finance the federal deficit, broad money (M2) increased by 30.5% from September to December of 1998 (Goland 2009). The abundant liquidity provided by the CBR immediately after the crisis appeared to exceed what was necessary, and liquidity put downward pressure on the ruble exchange rate. The high exchange rate pass-through Russia experienced when compared to other crises at the time indicated that the CBR’s lending efforts significantly contributed to mounting inflation (Owen and Robinson 2003, 33).

Despite the CBR’s unsterilized liquidity injections, monthly inflation fell from 11.6% in December 1998 to below 2% by the middle of 1999 (Antczak 2001). The expansive monetary policy was partially offset due to the absence of fiscal spending, which resulted in significant contractions in domestic demand (Owen and Robinson 2003, 33). Low money multipliers from deposit withdrawals, suspensions of deposit withdrawals, and the freezing of foreign exchange and credit markets also significantly helped tame inflationary pressures (Antczak 2001). The IMF noted that these conditions, as well as a shift to nonmonetary forms of payments in the domestic economy, helped explain why base money in real terms declined over the fourth quarter 1998 amidst liquidity injections (IMF 2002).

At the time of the crisis in 1998, there was no legal regime that enabled the CBR or another agency to take over insolvent institutions; the CBR had limited capabilities available outside of liquidity support (Owen and Robinson 2003, 31). The breakdown of the ruble treasury market from the GKO-OFZ default rendered conventional collateralized lending facilities ineffective, placing further restraints on CBR liquidity tools (CBR 1999a). We have not determined whether other options were considered; however, the rehabilitation loans and other lending programs using OBRs as collateral provided a solution within the CBR’s then-current limitations.

Especially after the default, the CBR’s lending support deviated from conventional liquidity interventions. First, the entire framework for CBR liquidity assistance revolved around ruble treasuries, which became entirely illiquid following the government’s default (CBR 1999a). The addition of entirely new financing instruments issued by the central bank, OBRs, constituted an especially unique feature of CBR support. Additionally, the severe illiquidity of Russian banks following the default of ruble treasuries and currency devaluation prompted the CBR to extend loans through unconventional means, such as the rehabilitation loans and the overnight loans that the CBR continuously rolled over (Rao 1998; Ippolito 2002).

Throughout 1998, the CBR communicated developments in its monetary policies on its website, including changes to interest rates, reserve requirements, and the operations of liquidity facilities (e.g., CBR 1998c). The CBR also provided explanations for such changes that reflected the different constraints of the exchange rate regime in the pre- and post-default periods. Pre–default period, the CBR provided liquidity through Lombard and O/I loans while subject to a commitment to a fixed ruble exchange rate. In this period, the CBR “continued to attach priority to measures to ensure stability of the domestic currency [which was] the objective of its monetary policy” (CBR 1998d).

As the CBR failed to fend off speculative attacks on the ruble in August, the CBR described that it “had to announce its decision to abandon the policy of artificially backing up the exchange rate of the ruble by foreign exchange interventions and switch to a floating rate” (CBR 1998d). Post-default monetary policy in 1998, therefore, shifted “to improve the situation in the banking sector” by clearing “the log-jam of banks’ nonpayments to clients” (CBR 1998d). By September, the CBR was emphasizing the importance of also limiting inflation in its liquidity operations; the first deputy chairman of the CBR, Andrey Kozlov, noted that the CBR sought to print as little money as possible while supporting domestic banks (Filimonov 1998).

In 1998, it appeared that the CBR made greater efforts to disclose its activities and the financial conditions of domestic banks in the period prior to default. For instance, as the crisis unfolded in June, bringing about the first wave of deposit runs, the CBR attempted to give depositors access to more information on commercial banks’ financial health (Rossiiskie Vesti 1998; CBR 1999a). According to an article on July 8, 1998, the Russian state newspaper Rossiiskie Vesti noted that the CBR planned to sign agreements with commercial banks to allow the CBR to routinely publish, via its website, banks’ income statements and audit reports (Rossiiskie Vesti 1998).

The CBR also more readily disclosed the activity of traditional monetary instruments in 1998, such as the Lombard facility. For instance, the CBR provided monthly updates for Lombard loans on its website throughout 1998. While the identities of banks were not revealed, the CBR disclosed the number of monthly borrowers, the volume of extended Lombard loans by duration, the facility’s outstanding balance, and the rate charged on operations (CBR 1999b).

The CBR, however, provided less clear information on the other liquidity operations following the default. Steinherr (2004) characterizes the CBR’s liquidity assistance after the default in August as “neither transparent nor following a clearly defined strategy.” An October 1998 Moscow Times levied similar criticism targeted specifically at the CBR’s unconventional use of the overnight loan facility. Market participants surveyed in the article expressed confusion as to why the CBR had allowed banks to continuously roll over credits at below market rates; according to the article, the CBR did not disclose when this new use of the overnight facility began or for which banks it applied (Rao 1998).

The absence of clear and transparent conditions for lending made it difficult to “unravel the intricate web of dependencies between commercial banks and the central bank that was woven shortly after the August crisis,” as one Euromoney journalist wrote in 1999 (Schaik 1999). By not providing key details of lending arrangements such as eligibility criteria, the CBR allowed financiers and journalists to speculate over the CBR’s political motives for extending loans to select banks (Rao 1998; Schaik 1999).

Although the CBR provided more disclosure surrounding operations of the Lombard and overnight/intraday facilities, it did not identify individual participants aside from the number of borrowers and corresponding regions (CBR 1999a). In the post-default period, the CBR provided even fewer details on the lending arrangements of the Lombard and overnight facilities (Rao 1998). When asked by the press why the CBR did not identify the distressed banks receiving liquidity relief, an official pointed to damaging market speculations often associated with the publication of struggling banks (Rossiiskie Vesti 1998).

By the end of 1998, 93.9% of all RUR 135.7 billion loans from the Lombard and overnight facility had been repaid on time. The CBR, however, did not mention how many of these loans remained unpaid by year-end. According to a 1998 CBR report on Lombard operations, the CBR stopped extending Lombard loans after September, and as of December 1998, RUR 600 million in loans were unpaid (CBR 1999b). Research could not discover equivalent data for unpaid overnight loans, since the CBR did not provide a separate document, as was done for Lombard loans.

With no initial predetermined exit strategy, the CBR eventually scaled down liquidity operations for the Lombard and overnight facilities by the end of 1998. Owen and Robinson (2003, 31) noted that the liquidity of the Russian banking system improved quickly after August and that ruble deposits of commercial banks at the CBR saw marked increases beginning in September. As evidenced by the absence of Lombard loans after September, the CBR reduced total liquidity operations beginning in October (CBR 1999b; Owen and Robinson 2003, 31). However, the CBR continued to extend liquidity to select banks through other, less-traditional means such as the equity-secured rehabilitation loan program and foreign exchange credits (Owen and Robinson 2003, 134).

Lastly, the pickup in inflation, surpassing an annual rate of 100% throughout the fourth quarter of 1998, prompted the CBR to reduce liquidity operations. As inflation increased rapidly in November 1999, the CBR attempted to tighten monetary policy in the first several months of 1999 (Owen and Robinson 2003, 32–33). Furthermore, the CBR bore less of a responsibility for banking relief going into 1999 as the government regained fiscal budgetary tools and bank restructuring plans received legal authorization (Owen and Robinson 2003, 140).