On 18 July 2009, the Russian President signed Federal Law No. 181-FZ "On the Use of State Securities of the Russian Federation for Increasing Banks' Capitalization." The Law entered into force on 21 July 2009.

The Law provides for the possibility of exchanging banks' preferred shares for federal loan bonds. The shares are to be specifically issued for such exchange. This opportunity is open to banks that meet a number of criteria (for example, a certain credit rating and amount of assets to be specified by the Government).

As a result of the exchange, the Russian Federation will become a shareholder in the bank with a veto power over a number of issues considered at the general shareholders meeting or board of directors meeting and will be entitled to receive annual dividends.

The bank and its shareholders will be able to repurchase the preferred shares from the Russian Federation within a certain term. Ten years after they are issued, holders of preferred shares will be able to request their conversion into ordinary shares in the bank.

Issuance of the preferred shares and their repurchase by the bank's shareholders are exempt from a number of statutory requirements (for example, obtaining consents from the Central Bank and anti-monopoly authorities).

On 17 July 2009, the Russian President signed Federal Law No. 168-FZ amending Federal Law No. 173-FZ "On Additional Measures for the Support of Financial System of the Russian Federation," dated 13 October 2008. The Law entered into force on 22 July 2009.

Federal Law No. 173-FZ entitles Vnesheconombank (VEB) to grant unsecured subordinated loans to Russian banks that meet the established criteria, until 31 December 2009. Loans may be granted in an aggregate amount not exceeding the amount of subordinated loans granted, and/or the charter capital contributions made by third parties (such as the bank's shareholders) after 1 October 2008.

The amendments allow VEB (until 31 December 2010) to grant subordinated loans to banks, which have previously received subordinated loans on the above terms, in an amount equal to three times the amount of subordinated loans granted, and/or charter capital contributions made by third parties after 1 October 2008.

The amendments also reduce the total amount of funds of the Fund for National Welfare deposited with VEB for granting subordinated loans (RUB450 billion (about US$14.5 billion)) by RUB40 billion (about US$1.3 billion), released for granting loans to the Agency for Housing Mortgage Lending.

On 19 July 2009, the Russian President signed Federal Law No. 193-FZ amending Federal Law No. 175-FZ "On Additional Measures for Strengthening the Stability of the Banking System during the Period until 31 December 2011," dated 27 October 2008. The Law entered into force on 22 July 2009.

Federal Law No. 175-FZ specifies preventive measures that may be applied by the Deposit Insurance Agency to prevent the bankruptcy of Russian banks. The Central Bank is entitled to refrain from revoking a banking licence or imposing sanctions on the bank while the preventive measures are applied.

The amendments extend the operation of the above Central Bank powers to banks to which similar preventive measures were applied without the participation of the Agency before Federal Law No. 175-FZ entered into force.

On 1 June 2009, the Central Bank issued Directive No. 2241-U amending its Regulation No. 215-P "On the Method of Calculation of the Net Worth (Capital) of Credit Organisations," dated 10 February 2003. The Directive entered into force on 8 July 2009.

Under Regulation No. 215-P, a credit organisation's net worth (capital) consists of the core capital and additional capital (Tier 1 and Tier 2 capital, respectively). Additional capital may include subordinated loans which meet the established criteria.

The Directive now allows inclusion of subordinated loans in the core capital of a credit organisation if they meet a number of additional criteria (subordinated loans with additional terms). These include, in particular, that the loans are granted for no less than 30 years and may be prepaid not earlier than ten years after they are included in the core capital.

The procedures for obtaining the Central Bank's consent for inclusion of the subordinated loan into the credit organisation's core capital and for repayment of the loan are similar to those established for "ordinary" subordinated loans.

On 10 July 2009, the Central Bank issued Directive No. 2259-U decreasing the refinancing rate. The Directive entered into force on 10 July 2009.

The Central Bank decreased the refinancing rate from 11.5% to 11% per annum. The new rate applies as of 13 July 2009.

The Central Bank sets the refinancing rate for its financing of commercial banks. The rate is also used for calculating interest on commercial loans (if the rate is not specified in an agreement), tax payments, and in other cases as provided by law.

This is the fourth decrease of the refinancing rate this year (it decreased from 13%, effective in April 2009, by 0.5% each time).

On 19 July 2009, the Russian President signed Federal Law No. 195-FZ amending the Bankruptcy Law and some other legislative acts. The Law (except for a few provisions) entered into force on 22 July 2009.

The amendments refer, among other things, to the pledge holder's rights where the pledgor becomes bankrupt. In particular, the Bankruptcy Law allows levy of execution on the pledged property (that is seizure of the property for it to be sold) in the course of some bankruptcy proceedings (namely, financial rehabilitation, external management or receivership). In such cases, the pledged property is sold at a public sale.

Under the new amendments, if the second public sale fails, the pledge holder is entitled to assume ownership of the pledged property at a price which is 10% less than the starting price at the second sale.

If it happens in the course of a receivership, the pledge holder will be obliged to transfer funds constituting 30% (or 20% if the pledge secures a credit agreement) of this price to the receiver for further distribution among the creditors of first and second priorities and payment of court expenses.

On 17 July 2009, the Russian President signed Federal Law No. 166-FZ amending the Mortgage Law. The Law will enter into force on 2 August 2009.

The amendments extend the operation of the Mortgage Law rules, which allow mortgagors of residential premises to insure their liability for failure to repay the loan, to mortgagors of any immovable property (such as buildings, office premises, warehouses and so on).

The amendments also clearly provide that if a mortgage holder chooses to enforce the mortgage by acquiring the mortgaged property for itself (or for a third party) and setting off its purchase price against the secured obligations, such purchase price should be determined based on the market value of the mortgaged property.

Finally, under the amendments, acquisition of a building with borrowed funds results in establishing a statutory mortgage, not only over a land plot underlying such building, but also over the building itself. Similarly, acquiring non-residential premises with borrowed funds will establish a statutory mortgage over such premises.