Sberbank chief financial officer (CFO) Taras Skvortsov said on 31 July that Russian banks now hold only enough liquidity to fund customer lending and can no longer buy federal loan bonds, the rouble paper known as OFZ that the Finance Ministry sells to cover its deficit1. The Central Bank of Russia has taken up the slack, putting 2.3 trillion roubles into the banking system since January against 6 trillion roubles of total bank debt owed to it.
Three numbers underneath that explain why the banks stepped back. Government bonds have absorbed 200bn roubles in mark-to-market losses, a paper loss measuring how far a holding's market value has fallen below its issue price on stock nobody has sold. Households have pulled 2 trillion roubles in cash out of the system since the start of the year, removing the cheapest deposit funding a bank has. A lender carrying unrealised losses on its existing bond book is a structurally unwilling buyer of more, at precisely the moment issuance rises.
Economist Nikolai Korzhenevsky calls the Central Bank's lending effectively a monetisation of the deficit2. Handle the word carefully, because it is his characterisation and not a description of the instrument. Liquidity support to banks is not the same thing as a central bank buying government paper outright, "effectively" is doing real work in his sentence, and a Sberbank CFO has an institutional interest in arguing that banks need help. Russia's deficit financing has run as a closed loop since 2022: the Central Bank lends to banks, banks buy OFZ, the ministry spends. Nothing in that chain is a direct purchase of state debt by the issuer of the currency. When the banks drop out of the middle leg, the loop shortens.
Skvortsov's half-year deficit figure of 5.7 trillion roubles is about 2.5% of Russian output, which matches the half-year picture already on this record rather than revising it. June's budget surplus came out of an oil rally rather than a structural turn, and Urals stood at $71.40 on 23 July with Washington's crude waiver still lapsed. The war that yielded a record-low advance in July is being funded, at the margin, by an institution that cannot run out of roubles.
