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. Last Updated: 07/27/2016

Luzhkov Decrees New Municipal Bank

Mayor Yury Luzhkov, in his first decree of 1995, has ordered the establishment of a new municipal bank to service the Moscow budget, sharply curtailing the city's close relationship with some 20 private banks, a senior official said Friday.

Andrei Borodin, an economic adviser to Luzhkov, said that the Moscow Municipal Bank would speed up the handling of city funds and ensure better security for the accounts.

"There has been a growing number of bankruptcies in the banking sphere," Borodin said. "This threatens the system as whole and could affect the city government's money."

The government currently keeps its budget accounts with about 20 banks, 13 of which are called "authorized banks of the Moscow government," including Most Bank, Menatep, Stolichny, Inkombank, Sberbank and others.

The title does not give the banks priority in dealing with the city budget compared to other banks but serves as a recognition of their stable links with the city government.

The mayor's office will begin transferring its budget accounts from commercial banks to the Central Bank's Moscow branch Monday pending the establishment of the municipal bank, Borodin said. He said the authorized banks would remain such and the Moscow government would cooperate with them on specific projects.

The first account to be withdrawn from a commercial bank will be that of the city finance department, kept with Most Bank. It is to be followed by the accounts of all the municipal tax inspectorates, Borodin said.

A spokeswoman for Most Bank, Tatyana Brilyakova, said the bank had taken the mayor's decision calmly and was preparing to comply with the policy. "It was a question of our image as an authorized bank rather than of making big profits," she said.

One of the main benefits of a single bank managing city funds would be faster handling, Borodin said. While he had no complaints about the services of individual commercial banks, Borodin said some transfers take up to two weeks because various government departments have accounts with different banks.

"The account of the finance department is with Most Bank, and the energy department has its account with Menatep," Borodin said. "Each bank takes some time to process the money, while in a municipal bank it could be done within the course of one day."

The municipal bank would also issue credits for private commercial projects, he said.

He said no decision had yet been taken on whether the city would own 100 percent of the municipal bank or sell a stake to private investors. "In any case we will have a controlling share in it," he said.

Russia's previous banking law forbade city governments to own stock in banks, forcing municipal budgets to go through commercial banks. But the State Duma, the lower house of the parliament, on Friday adopted a new version of the law erasing the restriction.