Turkey’s central bank said withdrawals from troubled investment funds largely moved into bank deposits rather than spreading across the financial system. Governor Fatih Karahan told a parliamentary commission on 6 October that deposits increased by TRY800 billion during the period. He said the fund market as a whole continued to function healthily after the authorities intervened. The bank remained ready to take further steps if market conditions required them.
Karahan’s appearance brought his first public comments on the fund crisis since the turmoil began in September. The central bank raised repo funding to TRY300 billion and increased banks’ borrowing limits tenfold after liquidity pressures emerged on 17 September. It also reduced collateral haircuts and the share of lira required reserves that banks must keep blocked. Faster bond purchases were intended to stop strain from reaching money-market funds outside the liquidation process.
LIQUIDITY MOVED INTO BANK DEPOSITS
Karahan said the measures were designed to support liquidity while preventing difficulties at individual funds from affecting the wider system. The transfer of savings into deposits meant much of the money remained within regulated banks. He said the central bank would support financial stability without compromising its price-stability objective. Reuters and Turkish broadcaster CNBC-e separately reported the TRY800 billion shift and the governor’s assessment.
The intervention followed an order to liquidate 131 funds managed by seven asset managers. Reuters reported that the affected funds had accumulated more than $20 billion in assets over three years and involved nearly half a million investors. The Capital Markets Board said liquidation would take six months, while investors in certain funds with net investments below TRY1 million would receive full repayment. Investors at or above that threshold were due an interim TRY1 million payment.
LIQUIDATION WILL TEST THE STABILITY ASSESSMENT
Regulatory investigations into suspected manipulation have accompanied the fund closures. Some funds were concentrated in thinly traded shares, complicating the prices at which their holdings can be converted into cash. The market strain pushed Istanbul equities into a bear market, and the main index recorded its worst month since 2008 in September. The eventual loss to investors remains uncertain.
Karahan’s no-contagion assessment indicates that the emergency liquidity measures have contained the immediate banking-system risk, but the liquidation process remains the practical test. The next measurable milestones will be interim investor payments and the pace at which the assigned banks can turn fund assets into cash during the six-month window. Further central-bank action would depend on whether redemption and funding pressures re-emerge. Any support would also have to remain consistent with the bank’s stated price-stability stance.