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Russian Bank Crisis Eases

August 28, 1995

MOSCOW (AP) _ The crisis in Russia’s financial markets eased slightly Monday when a few of the country’s more robust banks showed enough confidence to do business with one another.

Russia’s Central Bank and the government had pumped hundreds of millions of dollars into the young currency market Friday to ease the crisis, which halted trading for nearly two days amid rumors some large banks had become insolvent.

Although trading was extremely thin Monday, money market rates and the ruble held steady, dealers said.

``The situation is calm, but not yet stable,″ said Vadim Petrukhin, chief dealer at Konversbank.

But traders said an informal caste system was emerging among Russia’s some 2,500 banks, which was likely to speed the demise of the weaker ones.

``The big banks will open lines only to large banks,″ said Anna Sidelnikova, head of foreign exchange for Most Bank. ``For the small banks, I think this problem will last a rather long time.″

Small banks that had speculated on the market got hit hard last week when insolvent institutions failed to deliver on currency and money-market contracts, setting off a chain reaction of broken trades and shaken confidence.

The Central Bank continued to buy dollars and treasury bills Monday but its injection was smaller, dealers said, suggesting the market was moving toward stabilization.

On the money market, only top-flight banks were eligible for loans. They resumed lending to one another at relatively moderate overnight interest rates _ 150 percent in annual terms, down from highs of 1,000 percent last week.

Smaller banks had to pay up to 250 percent if they were able to borrow at all, dealers said.

Volume on the Moscow Interbank Currency Exchange totalled $49.8 million, down from $88.3 million Friday.

The dollar held steady at 4,422 rubles, and treasury bill yields fell as buyers appeared, dealers said. Big banks scooped up bargains as those desperate for cash dumped their holdings. Prices were mixed and volume fell to 793 billion rubles from 1,614 trillion Friday.

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