October 14, 2016, 00:02 / Finance

DIA may come under the control of the Central Bank

This is one of the options for changes in the bank resolution mechanism, there are other proposals Daria Borisyak

The Central Bank will oversee how the agency saves banks / Evgeniy Razumny / Vedomosti

In one of the options for the new financial recovery model, the Central Bank may become the curator of the Deposit Insurance Agency (DIA), said Central Bank Chairman Elvira Nabiullina. At the same time, she emphasized that various options are being discussed, including this one.

Nabiullina announced that the Central Bank intends to radically change the existing reorganization mechanism in July of this year. The regulator has prepared a bill that involves the removal of the DIA from the financial rehabilitation of banks and the transfer of this process entirely to the jurisdiction of the Central Bank. The document assumes that the Central Bank will create a reorganization fund and a management company (MC), which, having received shares of the rehabilitated banks, will create mutual investment funds and sell their shares to the Central Bank. Having completed its financial recovery, the fund will sell banks, and not necessarily at a profit.

The concept proposed by the Central Bank is the cause of disagreements between officials and the Central Bank. The Ministry of Finance, the Ministry of Economic Development and the DIA noted that the bill does not provide for external control over the activities of the fund, participants in the discussion told Vedomosti. The DIA, in its response to the bill, noted that a conflict of interests arises - the principle of independence is violated when making a decision on bank reorganization. The Central Bank will combine in one person the functions of a regulator, a banking supervisory authority and a sanatorium, which does not correspond to world practice, the state corporation insisted.

Due to ongoing disputes, there is still no solution, a federal official told Vedomosti. This week, a meeting on priority bills was scheduled twice with First Deputy Prime Minister Igor Shuvalov, but both times the meeting was postponed, Vedomosti’s interlocutor said and was confirmed by a person close to the DIA supervisory board. For now it has been postponed to Tuesday, October 18, one of them indicates. According to him, it is expected that participants will also discuss the Central Bank’s project for a reorganization fund.

Alexey SimanovskyAdviser to the Chairman of the Bank of Russia

The [bank recovery] fund is a kind of money bag. The proposal of the Bank of Russia was that these functions [rehabilitation of banks] would be transferred to the Central Bank. How it specifically implements this function is a matter under discussion.

There are different options for how the Central Bank can establish control over the reorganization of banks. The first is the option that was initially discussed: to create a bank reorganization fund and a management company from scratch, which will be under the control of the Central Bank, the federal official recalls, noting that the chances of this scenario being realized are low, since the government does not like it in this form. The second option is for the DIA to become the management company and act on behalf of the Central Bank Fund and carry out its instructions, he continues. The third option is not to change anything and not to create a management company, but to make sure that the DIA in some form comes under the control of the Central Bank, and the government is left with supervision of the agency’s supervisory board: Vedomosti’s interlocutor says: “Or the majority on the board will be from the Central Bank, but the government will continue to control the DIA.” Currently, out of 13 members of the supervisory board, seven are from the government; according to the Central Bank quota, only five can be appointed there; another one is the general director of the DIA.

Another federal official confirmed to Vedomosti that all these options are indeed being discussed: “There is no decision yet, working discussions are ongoing.”

Since the bill was planned to be introduced at the autumn session of the State Duma, some kind of solution should be worked out in the near future, one of Vedomosti’s interlocutors believes. It is obvious that the essence of the idea - to stop the practice of private banks handling financial recovery - will be implemented. The question is who will become the management company of the fund and who will have the opportunity to supervise its work, the federal official concludes. Nabiullina said the same on Thursday: “This will be a joint-stock form of rehabilitation, and not issuing loans to sanatoriums selected through a competition. The question is who will perform the function of the management company, this issue is being discussed.”

Based on these options, one way or another, the main issues relating to reorganization become the responsibility of the Central Bank, the question is in what form, says Oleg Vyugin, chairman of the board of directors of MDM Bank, former first deputy chairman of the Central Bank. The option of “resubordinating” the DIA looks the simplest from a technical and legal point of view, he believes; in addition, it will allow the Central Bank to deeply delve into the activities of the agency and in the same way increase the efficiency of reorganizations: “At the first stage, I would subordinate the DIA to the Central Bank and accept deciding how this structure should be managed." However, the option when a management company is created is also working, although more complex, he concludes.

Representatives of Shuvalov’s secretariat, the Central Bank and the DIA did not answer questions. The Ministry of Economic Development has not yet received a new version of the bill, its press service clarified.