Russia prepares to bail out its banks as economy collapses

(NaturalNews) Russia's economic crisis continues to worsen as 2015 begins, with its bank bailout having now been expanded to include Gazprombank, the nation's third-largest lender. On Dec. 31, OAO Gazprombank confirmed that it would receive more than $700 million in aid as the Kremlin scrambles to protect the country's banking sector after the ruble's free fall in 2014, which ended the year by having decreased in value more than 40%.

The plunge in oil prices, sanctions from the West and the collapse of the ruble have left the nation in a recession - which some are predicting will turn into a depression - as an uncertain New Year dawns for the Russian populace.

Oil-dependent economy puts Russian economy in peril

Russia's dependence on an oil-based economy has put the country in a precarious economic position. And many observers are speculating that the steep decline in oil prices which occurred without warning or a clear reason, was part of an engineered plot set in motion by Western governments and bankers to further punish Putin over the events in Ukraine after economic sanctions failed to have the desired effect.

By the end of December, the Russian central bank had spent more than $110 billion of its foreign currency reserves in its attempts to prop up the ruble. The bank bailout has been expanded, with a tripling of aid to retail bank National Bank Trust, which has now received 127 billion rubles in assistance.

The state-controlled bank, VTB, has been given 100 billion rubles from Russia's National Welfare Fund and expects to receive another 150 billion over the first quarter of 2015. VTB is The country's second-largest lender.

Economic sanctions due to actions in Ukraine also hurting Russian economy

Economic sanctions over Russia's involvement in Ukraine have led to the country's banks lending large amounts of money to businesses in the absence of international lending institutions. This, combined with the collapse of the ruble, has left Russian bankers strapped for cash, which had sent interbank lending rates skyrocketing to nearly 30 percent by the middle of December - a rate higher than those during the 2008 financial crisis.

The depreciation of the ruble had become so bad by mid-December - at its worst, around 80 rubles to the dollar - that it sent many Russians scrambling to exchange their rubles for euros and dollars at exchange points throughout the country. Sergey Voronenko, associate director at Standard & Poor's, has said that this "panic-driven deposit outflow" could lead to an even more unpredictable banking climate in Russia during 2015.

Meanwhile, Standard & Poor's has announced that it may downgrade Russia's sovereign rating to junk status in 2015.

Although some economists still believe that Russia has the ability to successfully recapitalize its banks and help companies honor their foreign debt obligations, others are suggesting that the only way out of a serious recession is for the country to cease its activities in Ukraine so that sanctions may be lifted.

Will provoked Putin back down?

The West seems to be hoping that all this will lead to Vladimir Putin to back down from his position regarding Ukraine. But the Russian leader is not one who is known for backing down. In fact, he has proved in the past to behave much like the "bear" he is so fond of invoking in his speeches.

As he put it in his December 18 news conference, Putin's Russian bear is unwilling to stand by and "eat honey" as its "fangs and claws" are removed.

Pushing the bear too far into a corner may provoke an unforeseen and dangerous response from a country which still maintains formidable power among the nations of the world, despite its current economic woes. An effort to force Putin's hand could easily backfire.

Sources:
http://www.washingtonpost.com

http://www.wsj.com

http://money.cnn.com