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. Last Updated: 07/27/2016

Duma Fights Yeltsin on Bankruptcy Bill

As angry depositors clamor to pull their money from Russia's stricken banks, a crucial bill on the procedures for bankrupting banks got stuck in a battle between President Boris Yeltsin and the parliament Friday.

On the one hand, the State Duma wants to give the Central Bank broad powers to administer bankruptcies, arguing it is the only independent agency up to the task.

But Yeltsin vetoed the Duma's bill last fall, saying he wanted a new agency under federal government control to handle bankruptcies.

The president also wanted to restrict the current powers of the Central Bank to place unhealthy banks under its temporary administration.

Parliament's lower house returned to the issue on Friday and overturned Yeltsin's veto with a vote of 196 deputies in favor and 14 against.

The original bill will now go a second time to the Federation Council, the upper house. If it is passed by a two-thirds majority, the bill will become law but the conservative regional governors have been reluctant to take on the president.

The next session of the Federation Council is scheduled for Jan.27.

Without a proper bankruptcy law, banks have been able to continue operating with impunity, even though they owe their creditors billions of rubles.

This has allowed some bankers to siphon off assets to related companies rather than paying out depositors. Pavel Medvedev, head of the Duma's subcommittee on banking, said in a telephone interview Friday that the president's administration was either deliberately or unwittingly working in the interests of recalcitrant bankers.

"For many - happily not for most - of the bankers, the current uncertain situation is simply a source of wealth," Medvedev said.

In his comments on the two bills, Central Bank chairman Viktor Gerashchenko also attacked the president's proposal, saying it would allow the owners of banks "to withdraw the remaining assets from credit organizations in case of the appearance of the threat of bankruptcy."

Gerashchenko also criticized Yeltsin for proposing that the Central Bank lose the power to impose temporary administrations on the smaller banks.

Other experts criticized the president's idea of setting up a new federal authority to handle bank bankruptcies. They said that it would require separate legislation and funding and would take months to set up. In the meantime, half of Russia's 1,500 are basically insolvent.

The Duma's bill would allow the Central Bank to keep full responsibility for regulating banks. It would allow the Central Bank to impose a temporary administration on a bank immediately after revoking its license.

"There will be quite a few improvements in the situation if the Duma's bill becomes law," Medvedev said.

"Now, the temporary administration is like a joke which can be easily overthrown - just think of what happened with such administrations in SBS-Agro and Inkombank in August and September," he said.

The Central Bank imposed temporary administrations on SBS-Agro and Inkombank, Russia's two biggest private banks, a few days after they stopped paying out to depositors in the wake of the financial crisis. But the administrations were thrown out after anonymous clients won decisions in lower courts.

"It happened because, strictly speaking, the Central Bank did not have the right to impose such administrations," Medvedev said. "The law on the Central Bank said that the bank has the right, but only in accordance with legislation. The problem was that there was no law setting out these criteria."

Medvedev said the Duma's law would create clear conditions for imposing temporary administration. "This is very significant because banking crooks don't waste their time. In 90 percent of the cases they steal banks' assets immediately after the license is revoked."

Lev Makarevich, an expert for the Russian Banks Association, said he believed that the presidential version of the Duma's bill was prepared under pressure from Russian banking oligarchs.

"The presidential administration was and is still used by oligarchs to push through the bills which are crucial to the major banks," Makarevich said.

"If they finally succeed and an executive supervisory body, under their control, is created, it will close its eyes to the atrocities which are done by the banks."