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Commercial Banks in Russia
Foreigner: As far as I know, Russia has a two-tier banking system. Russian: Yes, our banking system consists of the Central Bank of Russia (CBR) and commercial banks, which is typical of many countries in the market economy. F.: How do your commercial banks operate? Is the regulatory control strong enough?
R.: Banking in Russia is regulated by the Law on Banks and Banking in the Russian Federation. As to the CBR, it is constantly strengthening its regulatory and supervisory role. For instance, now banks can start operating only after they get registered and obtain a license from the CBR. F.: Your banking legislation provides for the existence of banks and credit institutions. How do they differ?
R.: Our credit institutions are only allowed to perform cash settlement operations, collect money and documents, buy and sell foreign currency.
F.: How are your banks run?
R.: It depends on the organizational and legal form of the bank. Banks with the authorized capital made up of contributions, have the status of limited liability societies. The founders' contributions may be in the form of money, property and other tangible assets. A joint-stock bank forms its authorized fund by issuing shares.
The governing body in a bank is a meeting of the founders or shareholders. Between the meetings, this function is performed by the bank's council. They determine the bank's policy.
Day-to-day management is carried out by the board, which is an executive body. The board is headed by the President. The board members determine the bank's structure and functions of its departments.
F.: In the West, bankers' services cover an enormous range of activities today. What about your banks?
R.: In principle, we offer practically the same services. All operations can be divided into active and passive. Passive operations are bank's resources consisting of a bank's own and outside funds. I mean the authorized capital, the reserve and special funds as well as the retained profit. F.: But the bulk of a bank's resources are formed by outside resources, in other words, loans obtained by the bank and deposits.
R.: You are right. Speaking about active operations, I'd like to stress that they are placement operations aimed to get a profit and guarantee a bank's liquidity. They are cash, credit and investment operations.
F.: What operations prevail in the assets structure?
R.: Lending operations. Their share is the largest.
F.: Then the loan management departments must be most careful with applicants.
R.: They are. They study creditworthiness of applicants and their credit history most carefully before they give recommendations to lending operations departments.
F.: Banks sometimes follow a risky credit policy. Are your banks tempted by quick and easy profits?
R.: They are. Moreover, sometimes they infringe normative documents of the Central Bank, particularly about the capital and reserve requirements. Some banks also infringe rules for accounting and reporting and requirements for reserves for possible losses.
F.: What is the position of the Central Bank in this critical situation?
R.: Banks are controlled regularly for capital adequacy, asset quality and liquidity, I mean cash and "near cash" investments.
F.: Refinancing is a tested technique to regulate bank's liquidity. Your Central Bank arranges refinancing, doesn't it?
R.: Yes, it does. Refinancing is done by granting lombard credits, through sale and repurchase agreements (REPOs), and by crediting correspondent accounts of banks acting as primary dealers in the GKO market.
F.: I see that your financial sector is really developing at a great pace.
Words you may need:
credit institution - кредитная организация
cash settlement - operations расчетно-кассовые операции
founder n - учредитель
contribution n - взнос
tangible assets - материальные активы
council n - совет
active/passive operations - активные/пассивные операции
outside funds - привлеченные средства
retained profit - нераспределенная прибыль
placement operations - размещение средств
primary dealer - первичный дилер, дилер по правительственным облигациями
applicant n - заявитель
creditworthiness n - кредитоспособность
credit history - «кредитная история», досье заемщика
tempt v - соблазнять
infringe v - нарушать (правила, законы и т.п.)
Ex. 14. Give extensive answers to these discussion questions:
1. What is the nature of banking? How do banks earn their living?
2. What services do banks offer to individuals/corporations?
3. What kinds of banks exist? Describe their activities.
4. How can an individual get a bank loan?
5. What does the stability of a bank depend on?
6. What are the functions of central banks?
7. In what way do the discount houses earn money?
8. How is banking developing these days?
9. How do banks obtain funds?
10. Describe the banking system of Russia.
In order to get prepared for participation in the class discussion of the questions, write a short essay on:
a) Services provided by banks.
b) Your attitude to the bank's work (see the main dialogue).
c) Different kinds of accounts opened by banks.
d) History of banking and its present-day developments.
e) The influence of modern technology on banking.
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