The banking crisis: too many questions, too many
answers
Marina Pustilnik
For almost two months the crisis in the Russian banking
system was more or less like a prolonged illness that wouldn't go away completely
There was a beginning, when the Central Bank of Russia recalled the
license from Sodbiznesbank on May 13 and CreditTrust was forced to close its doors soon
after. There was a relapse when their operations ceased Dialog-Optim, Promeximbank and
Paveletsky bank. But until last week the general sense was more of dismay than of horror.
It took one day to change all that - when Guta Bank (Russia's 26th largest in terms of own
capital) announced problems with liquidity, and Alfa Bank (Russia's 5th largest) suffered
from a rampage of clients, scared by the rumors of impending closure - it became clear to
all - the illness entered the crisis stage. The crisis generally has two outcomes - either
recovery or death. How did the Russian banking system get this far? Who and what is to
blame for a virtual collapse? The answers are few and all of them legitimate.
It remains quite unclear what exactly brought the Russian banking
system to the verge of a nervous breakdown. The media presents it as if the liquidation of
Sodbiznesbank came as a surprise to the banking community. Meanwhile, in October 2003,
former Interior Minister Boris Gryzlov made an announcement that Sodbiznesbank was accused
of laundering 500 million rubles ($16.6 million) and that four of its managers had been
placed under arrest. To a careful observer, it was obvious that it would be a matter of
time before the bank faced sanctions from the Central Bank authorities. Yes, the bank's
clients were careless and did not use the remaining seven months to pull out their
deposits. But the banking analysts who are employed by almost any bank just had to pay
more attention to such announcements so as not to be taken by surprise when the news came
in May of this year.
Still, the situation around Sodbiznesbank, albeit somewhat bizarre,
does not explain the scope of the problem which hit the banking community. The problem is
that much harder to comprehend because in the last couple of years the Russian banking
sector finally began to recover from the financial crisis of 1998. In spring 2004 the
media was full of reports that Russian citizens finally regained trust in the credit
institutions and began to deposit their savings in banks. The Russian banking system had
never been stronger, as the events of 1998 proved to be a natural selection of the
fittest, and it has finally began to serve its original purpose - crediting the industry
and the consumers instead of simply stashing the clients' money in safety boxes. As the
official press release by Alfa Bank's management stated, "there are no fundamental
macroeconomic reasons for such a crisis".
And so, what are the answers?
Answer number one. The Central Bank of Russia once again proved that
the road to hell is paved with good intentions. The authorities' plan was to pluck out a
number of "bad" banks, truly guilty of money laundering. The Central Bank failed
to realize, however, that even "bad" banks have a "human shield" made
up of their clients. And while closing such a bank would have positive consequences for
the overall "health" of the banking community, the negative repercussions could
easily outweigh them. Having failed to realize the consequences of its actions, the
Central Bank aggravated the situation by failing to make any clear statements addressed
not to the banking community but to the banks' clients who are now the locomotive behind
the escalating crisis.
Answer number two. The original situation which started as the problems
of two, rather small banks, Sodbiznesbank and CreditTrust, was aggravated by the media,
which, consciously or subconsciously built up the panic among regular private clients.
Journalists are not the only ones to blame, as the bankers themselves, as well as
government officials, such as Viktor Zubkov, head of the Financial Monitoring Service,
made a number of careless remarks which contributed to the general sense of nervousness.
The wave of rumors turned into a tide which overcame the banking sector with frightening
ease.
Answer number three. The question of malicious intent and unfair
competition should not be removed from the scales either. Back in June, trying to assuage
bankers' fears, CB's Deputy Chairman Andrei Kozlov mentioned that authorities believe that
the ongoing crisis is provoked by dishonesty on the part of some market participants. The
latest events prove that the Central Bank may not have been mistaken. When the problems of
Guta Bank surfaced last week, market observers immediately remembered that the bank had
once already staved off some unnamed rivals who wanted to take control of it. What proved
to be impossible then, just may be possible now. On July 7 one of Russia's largest and
most stable private banks Alfa Bank also came out with the official statement that its
problems were the result of premeditated attack by unscrupulous competitors, and though it
failed to name them, the bank's vice president Alexander Gafin said: "We know who did
this and by what means." The Central Bank also announced that an unnamed
privately-owned commercial bank wants to buy Dialog-Optim, which is also suffering from a
liquidity crisis. All of these events point out that the crisis may have been, at least in
part, the result of unfair play.
Answer number four. The Central Bank may really be the culprit behind
the whole crisis, but its fault lies not so much in a lack of action, but just the
opposite. Some analysts believe that the banking crisis was orchestrated in order to bring
a number of large private banks to a technical default, so that afterwards they could be
bought "for a penny" by large state-owned banks, such as Foreign Trade Bank
(Vneshtorgbank) or Savings Bank (Sberbank). This conspiracy theory may seem too
apocalyptic to some, but as the old saying goes - "There is no smoke without
fire". To prove the adepts of this theory correct, the Central Bank announced on July
7 that Guta Bank, which has almost half a million private clients, may be bought by
state-owned Vneshtorgbank.
And finally, answer number five. There are absolutely no fundamental
economic reasons that could have brought about the crisis. None, except one. The reason
can be found in the lyrics of a song by the once-popular group Gorillaz, who sang:
"...remember, it's all in your head". The Russian authorities have a long
history of doing nothing when yet another crisis hits Russian society. The Central Bank
has made it its official motto not to help the clients of the banks which have for one
reason or another "gone under". It doesn't matter that the country is
experiencing economic growth, that various international organizations are praising the
level of progress made by Russia in recent years, that just a few months ago ordinary
Russians were happily choosing which bank to put their money in. The crisis is in the
heads of the people who have learned long ago that when push comes to shove they have
nowhere to go for help. And so they rush to the banks and pull out their money "just
in case" the snowball keeps rolling and will soon become an avalanche. And the
Russian government is simply looking on, saying a few token words about the lack of any
systemic crisis, and waiting for the Russian banking system to go into oblivion.
“Moscow News”, #26, 2004
http://english.mn.ru/english/issue.php?2004-26-2 |