Budget Funds Up for Grabs

The government will hold its first auction to place budget funds among commercial banks on Wednesday or Thursday to support liquidity in the banking system, Finance Minister Alexei Kudrin said Monday, Interfax reported.

"The funds will be placed for a period of two weeks or more. In the first two to three weeks, it will be on a weekly basis, and from there it will continue as necessary. The volumes will depend on the needs of the market," Kudrin told reporters in Washington.

Kudrin told a Cabinet meeting last month that the instrument, managed by the Central Bank and the Finance Ministry, could provide up to 600 billion rubles ($25.58 billion) of liquidity.

The measure will allow banks with a rating of no less than "BB-" from S&P and "Ba2" from Moody's to take budget cash worth up to 40 percent of their own capital. The Finance Ministry expects about 30 major banks to take part in the auctions.

Russia, whose banks borrowed heavily abroad to finance growth, coped relatively well with a liquidity shortage in August to September 2007 and has escaped the severe liquidity problems that hit the banking sector of neighboring Kazakhstan.

However, with international capital markets caught in a liquidity crunch, Russian banks are facing slower growth in most segments and have put pressure on the government to provide urgent help.