The Bank of Russia introduces a new method of financing for banks: they will be able to lend to the Central Bank against gold guarantees. The measure to provide banks with liquidity is being introduced amid rapid growth in precious metal prices and high investment demand due to market volatility.
The Bank of Russia begins providing loans backed by gold for up to 90 days at a 7% annual rate, according to the Central Bank’s Public Relations Department following the results of the Board of Directors on Friday.
On gold security, the Central Bank will provide intraday loans, overnight loans, loans at a fixed interest rate and loans provided based on the results of a credit auction. Loans shall be secured by gold refined in standard or measured ingots that comply with international quality standards or standards established in the Russian Federation, owned by the borrower and transferred to the Central Bank for storage. Access to this type of financing will only be available to stable financial credit institutions classified in the first or second classification group. The value of the gold bars will be determined based on the discount price of gold set by the CBR and adjusted by a correction factor.
The question of introducing a mechanism for granting loans secured with gold arose during the 2008 crisis, when banks needed liquidity. The Central Bank, trying to expand the possibilities of refinancing for banks, introduced a number of lending instruments: in addition to expanding the Lombard list, unsecured auctions were introduced in particular. Through them, the basic liquidity needs of banks have been met, however, since January, the regulator has reduced the issuance of unsecured loans, returning to the discussion on the issue of the expansion of secured loans.