Russia poured £22bn into its three largest banks and halted stock trading for a second day yesterday in a bid to stem the worst financial crisis for 10 years.
The shock developments, linked to the ongoing global credit crisis, spurred a sell-off in Russian shares, which on Tuesday sank to levels not seen since December 2005.
Following a plunge of 6%, the dollar-denominated RTS index halted trading yesterday until further notice.
The Russian finance ministry said it would increase lending and extend deposit terms for major banks as markets had been unsettled by the fallout from the mortgage crisis in the US and the collapse of US investment giant Lehman Brothers, which caused world share prices to plummet.
In an emergency measure to shore up liquidity, the government said it would lend the country's three largest banks - Sberbank, VTB, and Gazprombank - up to £22.5bn for a minimum of three months.
"These are market-making banks capable of ensuring the liquidity of the banking system," a statement said.
"Essentially we're counting on them as core banks to be able to lend to small and medium banks," Finance Minister Alexei Kudrin said.
The move came as the US Federal Reserve announced a £48bn rescue package for AIG, the country's biggest insurance company, to save it from bankruptcy.
Despite this, the Dow Jones Industrial Average dropped almost 450 points in the course of yesterday. It finished the day at 10,609.
Meanwhile, the German government demanded a swift explanation yesterday of an apparent technical mistake that led a state-owned development bank to transfer 300m (US$426m) to Lehman Brothers shortly before its bankruptcy.
The KfW bank declined to comment on the transfer, citing an ongoing internal audit.
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