Ukraine nationalizes its largest bank to prevent financial meltdown

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Leaders in Ukraine decided to nationalize the largest bank in the country to prevent a meltdown there as part of an International Monetary Fund effort to fix the banking system there.

The government of Ukraine took over PrivatBank Sunday, an idea proposed by the bank as it has tried to get itself back on the right path, moving to recapitalize the institution and protect depositors while it is rehabilitated.

Ukraine has put great effort into fixing its banking industry during the last two years as it has relied on funding from the International Monetary Fund — recapitalizing Privatbank and others is part of the agency’s €17 billion bank bailout program.

Despite what the horror such a move may look to many investors, experts told The Wall Street Journal they think taking the bank takeover is “a positive move with a likely painful initial shock.”

Privatbank holds about one-third of all deposits in Ukraine, though the government says it requires several billion dollars in funding to back up savings, which the band does not have.

“These actions are taking place in strict coordination with international financial institutions and with their support,” government officials said, adding that its actions would “save PrivatBank and the entire bank sector.”

Step to maintain fiscal stability

Managing Director of the International Monetary Fund (IMF) Christine Lagarde has welcomed the decision of the Ukrainian government and the National Bank of Ukraine on the nationalization of PrivatBank, the largest bank in the country, as it is an important step to ensure financial stability.

“Today’s decision of Ukrainian authorities to nationalize PrivatBank is an important step in their efforts to safeguard financial stability. This decision was taken to ensure the smooth operations of the bank given its systemic role in Ukraine’s financial system, and in view of insufficient efforts to strengthen its capital adequacy in recent months,” she said.

“Ensuring that all banks operating in Ukraine meet capital and regulatory requirements is essential to maintain public confidence in the banking system and reinforce the banks’ ability to support productive activities necessary for the prosperity of the Ukrainian people,” the banker said.