As the global credit crisis has rippled outward from its epicenter in the Western financial system, Russia has struggled with a variety of primary and secondary impacts. Russia was already hit by the rapid flight of foreign capital after the Georgian conflict and the similarly rapid decline in the value of the ruble; the credit crisis has ensured that Moscow has not seen the end of its troubles. Pressed by cascading rounds of asset writedowns and margin calls, the globe’s most intrepid investors needed quick cash to cover debts. Positions in the riskiest markets, like Russia, were liquidated. Russian asset and currency values were knocked down hard.

The loss of confidence in Russian markets and the accompanying declines in asset values meant that small private banks in Russia were in a precarious spot. With their weakened balance sheets, these banks have become vulnerable to depositor panic — not an uncommon emotion in the Russian psyche. On Oct. 15, Russian banking clients of mid-size firm Globex acted on exactly these fears and elected to withdraw deposits in droves. The bank acted quickly to freeze customer accounts in order to prevent all of its cash reserves from running out the door, but perpetuated fear at the same time. The CBR loans thus come at a time when depositors are growing increasingly fidgety.

The size of the loan package, while fairly large in absolute terms, represents only about 2 percent of Russia’s foreign exchange reserves. Banks accessing the loan facility are required to borrow at least 1 million rubles (US$38,000), and will pay interest to the tune of 8.5 percent — a relatively high amount by global standards but not out of the ordinary for Russia. The CBR set the duration of the loans at 35 days, a clear sign that the banks are experiencing trouble securing short-term financing.

According to the most interesting of the loan facility’s terms, the loans themselves will be unsecured by any collateral — a first for Russia and to our knowledge a first for this crisis in general (for banks at least). Under normal circumstances borrowers make clear-cut agreements to post collateral, most often a pool of securities, in case of default. That the new loan facility is unsecured by any clearly defined collateral leads to a couple of conclusions.

First, state- and oligarch-owned banks are not the targets of these loans. These banks operate far beyond the scope of the entire loan facility, and unquestionably have either the political influence to secure loans with favorable terms, or the resources that keep them from needing the assistance in the first place.

Second, the small and mid-sized banks targeted by the loans may not have sufficient capital to secure a traditional loan. After all, if one were the CBR, why grant an unsecured loan if you had the option of granting a secured loan?

Finally, as collateral is not required, default on the loans could well be the desired result anyway. Russia has pursued an agenda of consolidating state control over private enterprise in recent years, and this move by the central government could be another step down that path. To be sure, extending short-term (35-day) loans, at relatively high interest rates to small, private banks experiencing a liquidity crisis isn’t exactly a vote of confidence in their future success. On the contrary, as the banks fail to repay loans plus interest within the 35-day timeframe, or secure additional funding in order to roll over the debt to a more distant maturity, they will face certain seizure by Russian authorities. It would not be a stretch. Already the Kremlin has used the financial crisis to weaken the oligarchs and to sever the financial links of several major companies to the outside world by buying up their foreign issued debt completely.

The creation of the new unsecured loan facility by CBR might simply represent a move to shore up the smaller banks within the system, preventing a chain reaction of bank runs. It could, at the same time, end up being one of Moscow’s most clever tools yet for consolidating control over its private sector — by forcing the banks to take loans under the full knowledge that most cannot pay them back.