In short

A round-up of today's news on the global banking crisis

Russia closes its two main stock exchanges to stop share slump

Russia was facing one of the biggest tests of its market economy yesterday after it was forced to close its two main stock exchanges to halt a rout that has led to the steepest declines since the August 1998 crisis.

The two key exchanges, Micex and RTS, said they were suspending trading until further notice from the state's main financial regulator after shares began to tumble again as investors faced a new wave of forced equity sales on margin calls and a dearth of cash. They had not reopened by close of business yesterday.

The collapse, which has wiped more than $700 billion off the stock exchanges in a matter of months and sent stocks spinning down to levels last seen in 2005, was threatening to spread into the real economy amid talk of more than one bank failure.

One of Moscow's biggest real estate developers, Mirax Group, said yesterday it was freezing several projects in the first sign the property sector could be hit.

Investors were still waiting last night for news of a bailout plan for mid-size brokerage KIT Finance, which confirmed on Monday that it had failed to meet several obligations.

A senior investment banker said a large commercial bank failed to make payments yesterday morning, causing Moscow to pull the plug on the stock exchanges. - (Financial Times service)

Cash crisis hits lending markets

Interbank lending markets were in crisis yesterday as demand for cash sent yields on the three-month US treasury bill, a beacon of safety, to its lowest level since 1941.

Funding in the short-term lending markets in the US and Europe was close to a standstill, said traders.

Giuseppe Maraffino, fixed income strategist at UniCredit, said: "Banks are hoarding their cash and this is putting a lot of strain on the financial system."

RBS Greenwich in London said: "To say that conditions are dysfunctional and volatile does not do the state of play justice. It is probably fair to say that the markets have not been this anarchic as far back as most traders remember, especially in the US."

Tougher rules for short sellers

US SECURITIES regulators have imposed tougher rules against abusive short selling in response to concern that such trading is helping to push troubled companies over the edge.

Short sellers aim to profit from share declines, usually by borrowing a stock, selling it, and buying it back after its price has decreased. In abusive or "naked" short selling, the seller does not borrow the stock and fails to deliver it to the buyer.

In the past year short sellers have focused on big financial services firms they believe were overvalued and undercapitalised. However, some market participants say they have forced down share prices and contributed to the fall of companies such as Lehman Brothers.