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Russian Interbank Repo Defaults Hit $3.7 Billion in Stress Test

Defaults on Russia’s market for interbank repurchase deals grew 17 percent in the fourth quarter, according to a central bank stress-test scenario of falling prices for financial assets.

Defaults increased to 112 billion rubles ($3.7 billion), compared with 96.1 billion rubles in the third quarter, Bank Rossii said in an e-mailed report today. Collateral gap, or the difference between the price of the assets used in the deals and the amount of cash they were supposed to secure, widened 75 percent to 10.7 billion rubles in the fourth quarter from 6.1 billion rubles in the third, it showed.

A full-blown crisis on the repurchase market is “unlikely,” the report’s authors wrote. At the same time, they warned that “mass default” is a “significant risk.”

Russian banks had about 3.7 trillion to 4 trillion rubles of collateral available to pledge for central bank funds as of Dec. 1, the report showed. The government, municipalities and companies issued almost 1.4 trillion rubles of gross new debt in local bonds and Eurobonds in the fourth quarter. There was a net increase of about 600 billion rubles of ruble-denominated debt in the period, according to data on the regulator’s website.

Demand for liquidity outstripped growth in securities that can be pledged in the fourth quarter.

“This may continue. Banks may use currency swap operations more actively if demand for refinancing continues to grow and a deficit of collateral arises,” the central bank said.

So-called tri-party repurchase operations between Bank Rossii, lenders and the National Settlement Depository will start by April, according to the report.

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