Banking in Russia
Banking in Russia is subject to significant regulations as banks in the Russian Federation have to meet mandatory Russian legislation requirements, and comply with numerous Bank of Russia instructions and regulations.
Prior to 1861, the growth of private savings was limited by the fact that the majority of Russia's population was composed of serfs, agricultural laborers who were tied to the land and had few personal freedoms. The only people likely to take advantage of personal savings accounts came from a small class of urban merchants and craftsmen. In 1862, there were only 140,000 deposit accounts totaling 8.5 million rubles in a country of 70 million people. After the abolition of serfdom in 1861, savings accounts became more widespread. Growth was particularly rapid in the 1880s, when the central offices at the Central Bank were supplemented by regional offices at local treasuries and telegraph stations. Savings offices opened in rural villages as well as urban centers, leading to a total of 4,000 branches and two million individual accounts in 1895.
In Vladimir Lenin's view, banks were an important framework for the building of a socialist society. He believed the ready-made big banks of capitalism could be converted into an effective apparatus for state control of the economy. However, banking activities ground to a halt in the chaos of the years immediately following the revolution. All commercial banks closed down in October 1917. Their staff received salaries but were instructed not to perform any banking functions in the hope that economic paralysis would bring down the Bolshevik regime. Nevertheless, by the end of the year, the Bolsheviks had succeeded in nationalizing all commercial banks, sending armed detachments to occupy their offices in Petrograd. While business accounts were confiscated, private savings accounts were respected. Commissar of Finance V. Menzhinsky ordered the re-establishment of the Department of Savings Offices. However, his efforts to maintain the private savings system failed during the period of Revolution from 1918 to 1921. Throughout those years, farm and consumer goods were requisitioned, nearly all money was withdrawn from the economy, and the exchange of goods operated on a barter system.
In Soviet times the role of the banks was practically speaking limited to financing central government’s economic plans; sectoral banks and savings banks existed but did not function in market-led conditions. So sectoral banks would, for example, provide financial assistance to Soviet enterprises with cash flow problems. However, the provision of credit often depended less on the creditworthiness of the borrower than on its priority for the planning policy makers and government departments.
The modern Russia inherited the banking system of the Soviet Union, with a few big state banks (like Sberbank, Vneshekonombank, and Vneshtorgbank). After more than 15 years of reforms in Russia, there are now 1183 financial institutions with 3286 regional branches.
On March 22, 1991, the Central Bank of Russia established the procedure for the issue of securities by commercial banks. From that time, Russian banks gained an outlet to the stock market. On April 2, 1991 the "Regulations for Buying and Selling (Transferring) Currency Exports Abroad through Citizens' Personal Funds" approved by the State Bank of the USSR entered into force. In this way, the creation of the Russian foreign exchange market began. And on April 9, the first auctions on the State Bank's currency exchange were held. Ten commercial banks and one financial organization took part.
During the period when Viktor Geraschenko was chairman of the Central Bank (1992-1994), the money supply rose by 20% per month. Immediately after the introduction of market reforms the Russian banking system was extremely small and unstable: the total capitalization of all Russia’s banks was less than a third of the share capital of a large American commercial bank, although in terms of numbers of banks Russia ranked third in the world, after the USA and Germany.
1998 financial crisis
Large banks lost between 14% and 45% of their retail deposits. An exception was Sberbank, which kept the large majority of its rouble-denominated accounts, but lost over 30% of its USD-denominated accounts. To protect savers, CBR offered to transfer savings from insolvent banks to Sberbank, since deposits at Sberbank were insured. Also dollar accounts were transferred to Sberbank at a rate of 9 roubles per dollar much below the market rate, so that customers lost an estimated half of the value of their dollar deposits.
On September 3, 1998, during the 1998 Russian financial crisis, private accounts at the SBS-Agro and MENATEP banks, Inkombank, Promstroibank, Most Bank, and Moscow Business Bank were frozen. Depositors at these banks were given the opportunity to transfer their money to the Sberbank at the rate of 9.33 rubles/US$. This action continued for one month.
Post 1998 reforms
In 2003, the Russian government implemented a government deposit insurance program, to partially level the playing field for private sector banks that had no such insurance, and the state banks that were backed by state funds. The deposit insurance program also was a way to introduce tighter supervision over the private sector banks that were required to meet financial health criteria by the Russian central bank before being eligible for the insurance.
2008 financial crisis
Beginning in early October 2008, several Russian banks failed due to liquidity issues related to US credit derivatives. Russian bank Globex barred customers from withdrawing money from their accounts October 15, 2008, in the first bank run of the current global economic crisis. Rather than severely damaging the banking sector, the crises have helped to improve its functioning by making authorities realise the necessity of enhancing regulation and supervision. The crises have also helped in ridding the sector of small questionable entities. State banks benefited from the 2008–2009 economic crisis, serving as agents for distributing crisis financing to the economy. They also received direct capital injections from the state and acquired some of the troubled private banks.
In June 2013 Elvira Nabiullina was appointed to the chairman of the Central Bank of Russia, made a campaign against shadowy banking activity a key part of her agenda for the regulator. Following the demise of Master Bank in early December of that year, she warned lawmakers it was not the only bank in such a precarious situation. In an interview with television channel Channel one she said Russia’s Central Bank has no blacklists of banks subject to license revocation. She added that the Central Bank will not warn any bank about such measures. She said "As a matter of fact, no one knows who might be the next, We cannot warn anyone. Moreover, it would be wrong to do that. I know not a single country worldwide where the central banks would warn about license revocation. It is not ruled out that in case a bank is warned, a mala fide owner or managers could divert assets, making settlements with closest clients, so a rank and file depositor will finally receive much less money".
And so, in December 2013 Central Bank of Russia revoked licenses of three commercial banks, Investbank, Smolensky Bank and the Bank of Project Finance. State-run Agency for deposits’ insurance paid money to clients.
The federal law "On banks and banking activity" regulates the activities of credit institutions in Russia, determines their legal status, establishes the rules for their registration, and defines the list of operations that only credit institutions licensed by the Central Bank can carry out, as well as the list of other activities that credit institutions may carry out.
Credit and Debit cards
At the end of 2009, some 700 credit institutions had issued and/or acquired payment cards in the Russian Federation. The number of payment cards issued by credit institutions at the end of 2009 totalled 124 million, up from 54.6 million at the end of 2005. Both Russian and international card payment schemes are active in the national market. The number of Russian card payment schemes has remained roughly constant over the past decade. At the end of 2009, there were about 60 Russian debit and credit card payment schemes, several times more than the number of international card payment schemes with cards issued and/or accepted in Russia.
On March 2014, amidst the 2014 Crimean crisis, following the passage of a secession referendum, the declaration of independence of the Republic of Crimea from Ukraine and the process of accession to Russia that followed it, U.S President Barack Obama announced sanctions on Rossiya Bank. International payment systems Visa Inc. and MasterCard suddenly stopped service of credit cards issued by the Rossiya Bank. Non-cash transactions of SMP Bank (owned by Rottenberg brothers) and Sobinbank (100% subsidiary of Rossiya) were also frozen.
Largest banks in Russia in terms of net assets (trillions of rubles) as of Dec. 1, 2013:
- Sberbank- 15.8
- VTB- 5.2
- Gazprombank- 3.5
- VTB-24- 2
- Rosselkhozbank- 1.8
- Bank of Moscow- 1.8
- Alfa Bank- 1.4
- Nomos Bank- 0.8
- Unicredit- 0.8
- Rosbank- 0.7
- Promsvyazbank- 0.7
- Raiffeisenbank- 0.7
- "The Russian banking system: between the market and the state", November 2011.
- Statistics on the site of the Bank of Russia
- Statistics on the site of the Bank of Russia
- OECD, 2004, p. 200.
- "Central Bank Cancels 3 More Bank Licenses". Moscow Times. Retrieved 14 December 2013.
- "Russia’s Central Bank has no blacklists of banks subject to license revocation - governor". ITAR TASS. Retrieved 14 December 2013.
- "Russia’s Central Bank revokes licenses of 3 commercial banks". Itar Tass. Retrieved 14 December 2013.
- "Agency for deposits’ insurance starts paying clients of banks whose licenses were revoked". Itar Tass. Retrieved 14 December 2013.
- "Payment, clearing and settlement systems in Russia"
- "Payment, clearing and settlement systems in Russia"
- "Bank Rossiya Is First Russian Lender Under U.S. Sanctions". Bloomberg. 20 March 2014. Retrieved 21 March 2014.
- "State Boosts Grip on Economy With Bank Crackdown". The Moscow Times. Retrieved 25 December 2013.