Impacts of the global crisis on the Russian banking industry
Today’s financial crisis could lead to the nationalization of private banks that are going through serious financial duress caused by these persistent market volatilities, Oleg Vyugin, board chairman of MDM Bank, said. “This is a real possibility, but, of course, I’m not implying that the government has already set such goals,” said the banker, whose previous positions as the director of the Federal Service for Financial Markets and deputy chairman of the Central Bank, buttress his extensive expertise and unique knowledge of the local financial services industry.
As an indicator of the probable nationalization of distressed financial institutions, Vyugin cited the ‘confidence crisis’ in the banking industry in 2004 that fatally undermined Guta Bank’s financial stability, and was consequently acquired by the state via the VTB Group. “Nationalization of banks is always a negative policy for the market, unlike when acquisitions are bankrolled through private corporate funding, which is a normal free-market process.”
“Nationalization of banks is always a negative policy for the market, unlike when acquisitions are bankrolled through private corporate funding, which is a normal free-market process.”
Vyugin also noted that the market volatilities over the past few days have already led to defaults on repo-operations/obligations, which have prompted a decrease in mutual trust between banks. As a result, the limits on the interbank loans market have been reduced or closed down entirely. “To remedy the situation, it became necessary to inject lots of finances into the defaulting banks to enable them meet their obligations to their counteragents.”
However, the banker sees the official financial rescue plans for the distressed banks as prudent and adequate, “because the resources, which the government has made available to the three largest banks, are more than enough to help resolve the financial institutions’ debts on repo-deals.”
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