The Russian Ministry of Finance just borrowed one trillion rubles in a single auction, covering two thirds of its quarterly plan in one go. If you read the headlines, you might think this shows strength. It is a sign that the Central Bank has stopped pretending to be a regulator and started acting as a printing press with extra steps.
The Failed Third Quarter
In August, the same Ministry of Finance failed its third quarter almost completely. The plan was 1.5 trillion rubles. They raised ten billion. Ten. The market is correcting. The market is telling you it doesn’t buy your paper.
So the Kremlin had three options: offer better terms, pressure the Central Bank into financing the banks, or force the Central Bank to emit money. They used all three, and it still was not enough.
Three Desperate Mechanisms
First, they offered floaters. Floating-rate bonds. For banks, it’s an unbeatable deal, because they earn more regardless of what happens to inflation or the key rate. For the government, it is expensive money that becomes even more expensive if the Central Bank ever has to raise rates again. Every one percent increase in the key rate costs the budget roughly 500 billion rubles on existing floaters alone. The last time they used this mechanism was last year, when they needed to cover the deficit fast. That should tell you how desperate this is.
Second, they pressured Nabiullina into promising she will not raise the key rate. Monetary policy operates differently. This is political interference dressed up as stability. It never ends well. You cannot promise your way out of inflation, and you cannot reassure markets by telling them the regulator has been captured.
Third, the auction only succeeded because the Central Bank pumped 953 billion rubles into the banks through the REPO mechanism at the exact same moment. The banks did not have the money. The Central Bank created it and handed it over so the banks could lend it back to the government. Borrowing works differently. That is emission with a delay.
The state is financing its war by devouring its own financial system.
The Hidden Banking Crisis
Alekashenko, the former deputy finance minister and former deputy head of the Central Bank, put it simply: coincidence? I do not think so. The REPO mechanism has gone from a normal liquidity tool to a bubble. In June 2025, it stood at 0.6 trillion rubles. Now it is 5.3 trillion. A one-off. Progression toward collapse.
The banks are short 2.6 trillion rubles in liquidity. They cannot buy government debt on their own. Their credit portfolios are deteriorating. The Central Bank is masking the problem by constantly restructuring overdue loans and keeping state banks on life support. A hidden banking crisis is unfolding. The IMF criteria are clear: problem assets above ten percent, depositors withdrawing money, banks being reorganized. Russia hit the first threshold in February. In July, Russians pulled a record 620 billion rubles out of the system. The state dominates the sector and prevents losses from surfacing, which is why no bankruptcies are visible.
What Breaks This
Two basic scenarios exist. The first is a shock:
- A sharp drop in energy prices, with Urals falling to forty or forty-five dollars, would expose the whole structure within three to six months.
- A major acceleration of inflation into double digits would do it too.
- A panic triggered by a 2022-style mobilization.
- Real sanctions enforcement from Washington, the kind the Graham-Blumenthal bill was supposed to deliver before it got watered down.
The second scenario is slower. The crisis matures by itself. The data is closed, so precise forecasting is difficult, but the most likely window for an explosive event is the end of the first half of 2027. That happens to coincide with the end of Nabiullina's contract in June. Symbolic, but not accidental.
The Kremlin is now choosing between saving the banking system and pursuing its political goals. It cannot do both. Every month of war makes the choice harder. Every month of high energy prices or soft sanctions enforcement delays it. But the structural damage is already done. The Central Bank has lost its independence. The banks have no free liquidity. The government is borrowing from itself through a bubble mechanism that would make MMM blush. True endurance under pressure. The question is not whether it collapses. The question is what the Kremlin chooses to sacrifice first, and how much damage it does on the way down.