Does rehabilitation of failing banks become their own business?
Russia's State Duma plans to draft a law, which obliges bank owners to be answerable for obligations with their property not only in case of bankruptcies, but in cases of recovery procedures as well.
Chairman of the State Duma’s Financial Market Committee, Anatoly Aksakov, told Izvestia that the respective bill would be considered by this fall. "I think we will introduce it in November," TASS cited him as saying.
On September 20, the Bank of Russia reported that Mikail Shishkhanov, one of the lender’s main shareholders and board chairman, had applied with a request to consider financial recovery procedures through the Fund for the Consolidation of the Banking Sector. Shishkhanov said that the Central Bank may acquire his assets, Inteco and part of A101, within the recovery procedure.
The head of the department of stock markets and financial engineering of the Faculty of Finance and the Banking Business of RANEPA, Konstantin Korischenko, speaking to Vestnik Kavkaza, noted that the draft law will complement the already existing mechanisms for banks' rehabilitation. "There is a bail-in regime, when the funds of depositors of the bank are used for a rehabilitation, and this law, apparently, will become a kind of addition to the bail-in regime: in order to preserve the stability and keep investors quiet, it is necessary to use money of shareholders," he explained.
A rehabilitation at the expense of shareholders is also certainly more beneficial to citizens than rehabilitation at the expense of the Central Bank. "A rehabilitation at the expense of the Central Bank means a rehabilitation at the expense of all citizens of the country, because this affects possible changes in inflation. The central bank transfers profits to the budget, it gives certain revenues to the state, and the state can spend it, including on social needs," Konstantin Korishchenko stressed.
The head of the department of regulation of financial institutions of the Faculty of Finance and the Banking Business of RANEPA, ex-chairman of the Deposit Insurance Agency of Russia, Aleksander Turbanov, noted that the idea to fix the obligation of banks' rehabilitation at the expense of their shareholders legislatively is absolutely logical. "Shareholders are responsible for their business, but the state is forced to help some banks on the verge of bankruptcy to avoid a chain of defaults, which as a result can lead to a systemic crisis," he pointed out.
"The state saves not the owners of the bank, but the banking mechanism of a specific economic entity to maintain stability in the market," Alexander Turbanov stressed.
"The degree of responsibility of the bank's owners is the subject of a specific consideration. Of course, first of all, they are responsible for the funds invested in the bank's authorized capital," ex-chairman of the Deposit Insurance Agency of Russia added.