Document Type

Case Study

Case Series

Broad-Based Emergency Liquidity

JEL Codes

G01, G28


Russian financial markets came to a halt on August 17, 1998, after the Russian government and Central Bank of Russia (CBR) issued a joint statement announcing a ruble devaluation and the suspension of payment on ruble-denominated government treasury bonds maturing before 2000—commonly referred to as “GKO-OFZ” bonds. In September, without a functioning treasury market and with many domestic banks unable to make payments, the CBR began issuing its own short-term, zero-coupon bonds (OBRs) as an alternative financing instrument to provide liquidity in the Russian banking system. OBRs held maximum maturities of three months and the CBR set an upper limit on the total volume that it would issue at RUR 10 billion (USD 1.6 billion). The CBR exchanged OBRs for restructured, illiquid ruble treasuries held by banks with outstanding debts to the CBR. The banks could then use the OBRs as collateral for the CBR’s Lombard standing lending facility and to obtain overnight loans from the CBR. Banks could use the relatively liquid OBRs to regulate their own liquidity through interbank markets. Additionally, the CBR began conducting repurchase operations (repos) using OBRs with banks on November 12, 1998, and by the end of the year, 214 dealers were registered in the OBR market. The CBR made the first of 12 issuances of OBRs on September 30. Of these 12 issues, five were placed by auction and seven in transactions within the secondary market. All but four issues were redeemed by year-end, leaving RUR 2.3 billion of OBRs outstanding that would be redeemed by February 1999.

Date Revised