Bank of Russia lends to banks, so banks lend to the State

The Russian state lost its bond buyers in July, and the banks that were supposed to buy them are losing seven months of deposits. The gap has been filled by the central bank, which has become the main provider of liquidity to the banking system. The chain has four links: people are withdrawing money from banks; banks are running out of free liquidity; the state can no longer sell its bonds; the central bank is lending money to banks on the collateral of government securities.

• The first link: bank withdrawals

In the first two weeks of August, cash in circulation in Russia increased by 286.4 billion rubles, about 3.4 billion dollars, after outflows of 7.3 billion dollars in July and more than 4.5 billion in June. The figures are from the Bank of Russia and were published by The Washington Post on August 18, in an article signed by Catherine Belton. This is the seventh consecutive month of net cash outflows from the banking system.

Taras Skvortsov, Sberbank's vice president and chief financial officer, told RBK radio in late July that withdrawals had reached about 2 trillion rubles since the beginning of the year; the statement was published by The Moscow Times on July 31. By mid-August, the total had exceeded 2.4 trillion. The Bank of Russia said that cash in circulation increased by 700 billion rubles in July, up from 500 billion in June, faster than in the same period in previous years.

• The second link: banks are running out of liquidity

Five of the seven largest Russian banks have seen net outflows of individual deposits, Euronews reported on August 19. Gazprombank lost 299.5 billion rubles, or 10.8% of deposits, in four months; Rosselhozbank, over 15%; Alfa-Bank, the largest private bank, 179.4 billion, or 5.6%.

Banks defended themselves by raising interest rates. The average rate on three-month deposits at the top twenty banks reached 13.76% on August 5, the highest level since March, although the central bank had cut its monetary policy rate to 14% in July. The data comes from the Finuslugi platform. Skvortsov's conclusion, in the same RBK intervention: banks today only have funds for lending to customers, which is their core business.

• The third link: the state is left without buyers

On July 20, the Russian Ministry of Finance indefinitely suspended government bond auctions, stating in a statement that it wanted to stabilize the market; the announcement was reported by Interfax and Reuters. The ministry had planned to borrow 1.5 trillion rubles in 14 auctions in the third quarter. Of the three auctions held in July, only one resulted in sales: 9.1 trillion rubles, on July 1. The domestic borrowing plan for the entire year was 4.4 trillion.

Yields on bonds with maturities of more than ten years had exceeded 16.5%, and banks holding them had recorded revaluation losses of about 200 billion rubles, according to The Moscow Times, July 31.

• Budget: Almost double target in seven months

The federal budget deficit was 6.455 trillion rubles in the first seven months of the year, or 2.8% of gross domestic product, according to Finance Ministry data published on August 11 and reported by Interfax. The budget law provided for 3,786 billion for the whole year, or 1.6% of the gross domestic product. Bloomberg calculated, using the same data, a deficit of 724 billion in July alone, after a surplus in June. Gazprombank analysts estimate an annual deficit of 6,500-7,500 billion rubles, according to The Moscow Times, July 31.

• Calculation: from what the deficit was covered

The deficit to be covered in January-July was 6,455 billion rubles. About 3,500 billion rubles have been withdrawn from the free balances of the Treasury's single account since the beginning of the year, according to estimates by Sergei Aleksashenko, former first deputy governor of the Bank of Russia; the estimates were repeated by the Ukrainian press around August 13 and are not official data. The liquid part of the National Welfare Fund fell from 4.1 trillion on January 1, a figure published by The Moscow Times on January 16, to 3.69 trillion on August 1, a figure from the Ministry of Finance reported by the TASS agency: about 410 billion. The domestic public debt increased from 30.65 to 32.92 trillion between January 1 and June 1, according to The Insider: about 2.27 trillion.

The sum of the three is about 6.18 trillion, compared to a deficit of 6.455. The calculation is closed, with a difference that falls within the margin of estimates. The loan figure is known by June 1, not by July 31.

What's left: the Treasury account fell from about 8,000 to about 4,500 billion rubles this year, according to the same estimates, and the National Welfare Fund had 3,690 billion in liquid assets as of August 1. Together, about 8,200 billion. Gazprombank analysts estimate the deficit for the full year at 6,500-7,500 billion, according to The Moscow Times of July 31.

A note on sources. The figures on reserves come from institutions of a state at war, which would have an interest in showing them higher than they are, and of a neighboring state at war with it, which would have the opposite interest. There are also discrepancies in Russian reporting: for the first quarter of 2026, the Treasury reported federal spending of 7,930 billion rubles, and the Finance Ministry, 12,890 billion for the same period, according to The Insider. If the deficit is reported lower than it is, and the reserves are higher, then the term calculated above is the maximum, not the minimum.

• The fourth link: central bank credit

Since the beginning of the year, the Bank of Russia has provided banks with additional loans of 2.3 trillion rubles, and the total debt of credit institutions to it has reached 6 trillion; the figures were given by Skvortsov and published by The Moscow Times on July 31. The central bank's claims on the banking sector amounted to 6.243 trillion rubles as of July 22, 2.6 trillion more than on January 1, the same publication reported on July 25.

The central bank maintained its forecast for the structural liquidity deficit for 2026 at 2.4 trillion-3.6 trillion rubles and said that the sector's liquidity needs under market conditions averaged 5.1 trillion rubles in July, the same as in June. The data was published by Interfax in early August.

The sentence that sums up the chain also belongs to Skvortsov, on July 31: all hope now lies in some form of support from the central bank.