The attempted Soviet coup d'état (1991) The short-lived coup d'état in Moscow in August 1991 led to uncertainty about the status and possible actions of certain financial institutions based in, or owned by institutions in, the then Soviet Union.

2.2.4 The attempted Soviet coup d'état (1991) The short-lived coup d'état in Moscow in August 1991 led to uncertainty about the status and possible actions of certain financial institutions based in, or owned by institutions in, the then Soviet Union. For a few days the uncertainty had a disruptive effect on settlement in the foreign exchange market, in which these institutions were active traders. Some of their market counterparties were unwilling, given the political climate, to expose themselves to what they saw as potentially very acute principal risk in settling their maturing FX contracts. They instead pressed for the receipt of countervalue (or a guarantee from an acceptable third party) in advance of releasing funds. As a result, some deals were not settled when due. There were also some instances of unwillingness on the part of the Soviet-based institutions' correspondent banks to release funds even when countervalue had been received, including at least one attempt by a correspondent to withhold funds it was due to pay out to its customer on one day to cover an amount it was due to receive from the same customer the next day. The effect of these measures was to protect the western counterparties from principal risk, but to expose the Soviet institutions to an immediate liquidity risk, at a time when money market participants were increasingly reluctant to deal with them. Fortunately, no widespread systemic problems developed, partly because some counterparties were able to come to bilateral understandings - in some cases with the help of public authorities - which enabled deals to be settled. This type of - 8 - situation could, however, in different circumstances, have had more wide-ranging and serious consequences.