President Dmitry Medvedev of Russia pledged $20bn (€14bn, £11bn) on Thursday to shore up the nation’s stock markets after the worst declines since the August 1998 crash.
Mr Medvedev’s pledge came as the finance ministry rolled out an crisis plan aimed at boosting liquidity in the banking system, which would double the amount of budget funds placed in short-term deposits at the three main state-controlled banks to a total of Rbs1,500bn ($59.1bn).
The government also said it would slash oil export taxes by a quarter, a move that would raise liquidity across the banking system by boosting the cash balances of oil companies that have been squeezed by tax rates set at the high oil price levels of a few months ago. Ruben Vardanyan, president of Troika Dialog, one of Moscow’s largest investment banks, said: “I hope this [plan] will stabilise the situation. Some very serious steps have been taken that should act not just for the short term but over a longer horizon too.”
The government also announced on Thursday that it would ban margin selling and short-selling. But the order will only affect new accounts, while existing ones are still to be settled, Mr Vardanyan said.
Investors said the government appeared to have acted appropriately in closing the two main exchanges for two days in order to halt a wave of panicked selling.
Interbank rates fell on Thursday to 7 to 8 per cent for top banks, but in some instances remained as high as 25 per cent for smaller banks.
Banks largely stopped lending to each in recent days after a mid-sized brokerage KIT Finance failed to meet obligations to a number of counterparties.
Rumours flew on Thursday of other bank failures, while forced equity sales on margin calls sent the market spinning down.
In an effort to make sure the settlement system does not fail again, the government ordered the state banks to open a Rbs60bn credit line to the biggest market participants.
But some investors said forced equity sales on margin calls could still resume on Friday and drive the market down.
“No one knows what the extent of the leverage and the problems are,” said James Fenkner, founder of Red Star Asset Management, a Moscow hedge fund.
Other market players said concerns were growing about the extent of losses potentially incurred by Moscow’s investment banks, with a whole class of retail clients wiped out by the market fall.