Deposit Insurance And Banking Reform In Russia

Abstract

The objective of this paper is not to review the pros and cons of deposit insurance systems, but to focus, rather narrowly, on the recent adoption of a deposit insurance system (DIS) in Russia, the rationale offered, and the potential impact it might have on the stability and development of the Russian banking system. An attempt will be made to draw some lessons from the implementation experience in Russia. The paper starts with a brief description of the Russian DIS, followed by an overview of the banking system's structure and some observations on the sequencing followed for adopting the DIS and the political economy of its adoption. It closes with a discussion of areas requiring attention.

Deposit Insurance, Banking Crises, and Market Discipline: Evidence from a Natural Experiment on Deposit Flows and Rates

“…Sberbank's market share, moreover, declined after household deposits became insured. There has also been a decline in the combined market share of the 30 largest banks, suggesting that the insurance scheme has contributed to greater competition within the retail banking market (Camara and Montes‐Negret 2006, Chernykh and Cole 2008).…”

“…All deposits up to 100,000 rubles were fully insured from when banks were first admitted into the system in September 2004 until August 2006 11 . From then until March 2007, up to 190,000 rubles per deposit were insured, with amounts above 100,000 insured at a 90% rate (Camara and Montes‐Negret 2006). After March 2007, the 190,000 ruble ceiling was increased to 400,000 rubles.…”

The Effect of Deposit Insurance on Market Discipline: Evidence from a Natural Experiment on Deposit Flows

“…All deposits up to 100,000 rubles were fully insured from when banks were first admitted into the system in September 2004until August 2006. From then until March 2007,000 rubles per deposit were insured, with amounts above 100,000 insured at a 90% rate (Camara and Montes-Negret, 2006). 10 By January 1, 2005, several month's into the system's operation, 829 banks and a bit more than 330,000 deposit accounts, with an average deposit size of seven thousand rubles (roughly $252), were insured by the system.…”

“…Sberbank's market share, moreover, declined after household deposits became insured. There has also been a decline in the combined market share of the thirty largest banks, suggesting that the insurance scheme has contributed to greater competition within the retail banking market (Camara and Montes-Negret, 2006;Chernykh and Cole, 2008).…”

“…Rapid policy responses of the CBR and the State Duma prevented a further deterioration of the situation and the panic abated. Private deposits in the banking system started to grow again shortly thereafter(Camara and Montes-Negret, 2006) 13 Such a policy of blanket deposit guarantees has become common in the midst of systemic banking problems around the world (Demirguc-Kunt,Kane and Laeven, 2008) as demonstrated most recently in the responses of many countries to the global financial crisis of 2008-09.…”