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. Last Updated: 07/27/2016

Russian Banks File Suit Over Debt Moratorium

Russian banks took the government to court Wednesday in a lawsuit that demands the Kremlin scrap the decrees that forced a debt moratorium and a new state securities market.

In the appeal to the nation's highest court, the Russian Banks Association, which unites 800 banks, called the government's actions in August illegal and said they would cost the banking sector up to $40 billion this year.

"Direct losses by the banking sector could reach $40 billion by the end of the year," Vladimir Vinogradov, Inkombank chief and vice president of the Russian Banks Association, said at a meeting of the organization's bankers. "Our economy has lost about $96 billion because of the financial crisis."

The association's president, Sergei Yegorov, said he filed the lawsuit Wednesday asking the Supreme Court to annul the orders that called for a foreign debt moratorium and a restructuring of the treasury bill market.

The banks say in the complaint that the government's orders dealt "a huge material damage to the commercial banks, which have lost their most liquid assets. Now most of the banks are not able to conduct payments for their clients, many of whom are individuals, which caused significant damages of their rights and freedoms, including the freedom to deal with their property."

In the lawsuit, the banks say the legal basis for court action is that the civil code does not allow terms for state securities to be changed after the paper has been issued and that the decree "Appeal of the Russian Government and the Central Bank," which forced the T-bill default and a moratorium to be placed on foreign debts, is not a law and therefore cannot be applied as one.

"I have no idea how the Supreme Court will handle our suit. But we believe that in a legitimate state no one is allowed to violate the law -- neither the government, nor president, nor the Central Bank," Yegorov said.

The association also discussed proposing to the Central Bank's acting head, Sergei Alexashenko, that the government buy back all state bonds coming due this year and change the way it taxes banks.

The association said the system of interbank currency transactions should be changed so that it is conducted within Russia through either a specially created department at the Central Bank or the existing OPERU-1 department, which conducts the bank's currency transactions.

The association's banks account for 70 percent of all banking assets in Russia, Yegorov said. Forty percent of the banks are in Moscow, he said.