Central Bank about new instructions

Troubled banks will not be able to accept deposits
Yesterday, Vestnik Banka Rossii published the instruction of the Central Bank “On additional measures to protect the interests of bank depositors.” The new instruction will allow the Central Bank to very soon exclude all troubled banks (there are approximately 700 of them in Russia) from transactions with individuals. The new document of the Bank of Russia was commented on by Deputy Chairman of the Central Bank DENIS KISELEV to Kommersant correspondent ALEXANDER SEMENOV.

— The instruction stipulates that from July 1, all financially unstable banks must stop attracting deposits from individuals if the amount of funds raised exceeds the amount of their own capital. How can banks notify their clients about this?
— The territorial administration of the Central Bank will send an order to the bank with a corresponding restriction or ban on activities. The regulations provide for various implementation options. For example, you can transfer deposits to another bank. Some banks will be able to limit the attraction of new deposits by adjusting their interest rate policy - lowering the rates on attracted deposits. This is a matter of relationship between the bank and its client. We cannot interfere with them. Banks will notify clients as they see fit.
In addition, we are pushing banks to resolve this issue before the Bank of Russia has to apply enforcement measures: if the requirements are not met, the question of revoking the license will be raised. By the way, this is also one of the measures to protect investors. The issue of revoking a banking license will be raised at an earlier stage, and this will prevent an unpleasant situation when an insolvent bank conducts banking operations, satisfying the demands of some creditors, and after that there is nothing left for depositors.
— The classification of banks into groups of financially stable and unstable is carried out on the basis of the Central Bank letter #457. But this letter was not published anywhere. Do banks know which group the Central Bank classifies them into?
— This document is not closed - it was sent to territorial branches of the Bank of Russia and credit organizations. So they know about our requirements. And they can take appropriate measures to correct deficiencies.
— How are banks classified?
- In fact, this is not a new invention - such a system has been in operation for quite a long time. The point is that a group of financially stable banks is identified, which includes banks that do not have problems, or those whose problems can be solved in the near future.
Another group is banks experiencing financial difficulties. They, in turn, are divided into banks experiencing serious financial difficulties and banks in critical financial condition. That is, those for which either a reorganization procedure or a bankruptcy procedure should be considered.
The financial condition is determined by a number of bank indicators. This, for example, is the bank’s compliance with economic standards, timely payments when fulfilling obligations to clients and creditors, well-established accounting work, and timely submission of reports. Every month, based on the reports received, we conduct such an assessment.
— How many banks, according to your calculations, are included in the second group? And how much do they account for in the funds of individuals?
— About a third of banks are considered financially unstable, and if we count by the share of assets in the banking system, then they account for about 5% of the assets of the entire system. In our opinion, this is quite a lot. But it should be noted that not all such banks have a license for transactions with individuals, and some, having a license, do not conduct transactions with individuals. When the instruction comes into effect, the situation will change. I think for the better. Now that banks have learned that if there are signs of trouble, they will be subject to strict action, they will try to resolve the problems before the guidance comes into force. Many banks are now making efforts to increase capital and meet standards. Therefore, I would not say that as of July 1, so many banks will lose the right to work with individuals.
— Will you somehow inform depositors about which group the bank belongs to?
- No. First of all, this is not necessary. Since there are formalized criteria according to which any bank client can calculate his financial condition. Secondly, according to the law on banks and banking activities, depositors have the right to receive all the necessary information from the bank itself.
— Agree that it is still difficult for an ordinary depositor to assess a bank balance.
— We expect that, given the availability of complete information, the business of professional intermediaries for processing banking information will develop (and significantly, compared to what we have now). These intermediaries, based on available information, will be able to give the depositor an accurate and short assessment of the financial condition of the bank. Rating agencies work in exactly the same way now.
Nevertheless, our plans include developing a procedure for disclosing information about the bank. But this, I repeat, does not mean that we will say which stability group the Central Bank classifies this or that bank. The information that we receive from banks in order to implement supervisory measures is a banking secret. That is, we cannot distribute all information on our own behalf, but we can oblige banks to provide information to their clients.
— When do you plan to develop a procedure for disclosing information?
— I think by the end of April. By the way, a similar procedure for disclosing information is prescribed in the law on joint stock companies. We propose to develop a disclosure rule for all banks conducting transactions with the public.
In addition, today it is not easy for banks to hide their real state: the new chart of accounts shows the structure of the bank’s loan portfolio much better. Therefore, it is unlikely that a depositor, by contacting the Central Bank, will be able to obtain more detailed information than that contained in the bank’s balance sheet.

Newspaper "Kommersant" No. 57 dated 04/02/1998, page 9