Russian Banking

Russian Banking

Evolution, Problems and Prospects

New Horizons in Money and Finance series

Edited by David Lane

Russian Banking considers the rise of commercial market-oriented banks in Russia, their links with government and non-financial companies and their role as intermediaries in the provision of finance for investment. The contributors explore the legacy of the Soviet past and current functions of the Russian banking system, contrasting these with those in other post-communist societies and describing peculiarities such as informal networks and corruption.

Chapter 2: Bank Sector Restructuring

Satoshi Mizobata

Extract

Satoshi Mizobata The Russian financial crisis in August 1998 caused a great deal of damage to the banking sector. However, the oligarchic financial groups have not lost their power. The financial groups have strengthened their influence on the Russian Union of Entrepreneurs and Industrialists, whose member-firms accounted for more than 80 per cent of GDP (Segodnya, 25 November 2000), and maintained their presence in the (central and local) governments. In addition, the financial crisis and the subsequent economic recovery in Russia confirm that the development of financial institutions, which intermediate between the owners of the means of production and innovators, is indispensable for the capitalist economic system (Schumpeter, 1962). Financial system reforms in the aftermath of the crisis have also helped improve our understanding of the peculiarities of the Russian economic system. FINANCIAL FLOWS AND THE ROLE OF THE BANKING SECTOR I will describe financial flows by sector, focusing in particular on the role of the banking sector in financial circulation (see Figure 2.1, Vedev, 1999, pp. 53–69). First of all, households and non-residents can be regarded as net creditors, or surplus sectors, as they offer funds through deposits and loans. As these funds and banks’ own funds are lent to firms and governments, the latter become net debtors, or deficit sectors. The 1998 crisis did not cause any fundamental changes in these financial flows. But the following characteristics can be added: 1) although banks are net creditors in rubles, in foreign currency they...

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