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CURRENT TRENDS
IN THE RUSSIAN BANKING:
COMPARATIVE AND
INSTITUTIONAL ANALYSIS
Svetlana Kirdina
Institute of Economics - Russian Academy of Sciences (RAS)
[email protected] , www.kirdina.ru
Andrei Vernikov
Higher School of Economics - National Research University;
Institute of Economics – RAS
[email protected], http://www.hse.ru/en/org/persons/64873
1
Moscow, Russia
Research questions


Has post-Soviet transformation led to an irreversible
change in the intrinsic model of financial
intermediation and credit allocation?
What was the impact of the financial crisis?
2
Outline



Financial intermediation reforms in post-Soviet
Russia (1991- …)
International context: Russia compared to Central
& Eastern Europe and China
Interpretation based on the theory of institutional
matrices
3
Stage 1 (from 1991 until 1998): State
withdrawal from financial intermediation



Appropriation of state-owned banks by private
persons, mainly insiders;
New private banks emerge;
Foreign banks establish their subsidiaries in
Russia.
4
Stage 2 (from 1999 until 2009): State reengagement with financial intermediation





State-controlled banks increase their market share
Private domestic banks are crowded out
State regulation of banking becomes more
comprehensive and intense
During the crisis the government steps into the
banking industry more directly
Development and policy lending expand.
5
Breakdown of Russian banking
system, 2000-2010
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
foreign-controlled
banks
private domestic
banks
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
state-controlled
banks
6
Factors that led to state re-engagement
in the banking sector






Lack of private capital, insufficient depth of financial
intermediation
Fragility and volatility of the credit system
Popular mistrust towards private banks
Private banks pursued only short-term strategies, failed
to finance innovation
Private banks did not display superior efficiency
compared to state-owned banks
Huge social cost of keeping private banks afloat.
7
Stage 3 (from 2010 - ?): New wave of state
withdrawal ?



The number (not a share) of state-controlled banks falls
(divestment; merger; fraud)
Market share of state-controlled banks stops growing
Privatization program is announced.
8
Market shares of state-controlled banks:
Russia Vs. CEE
Romania
40
Croatia
30
Slovenia
20
Czech R.
10
Slovakia
0
Bulgaria
2010
50
2009
Ukraine
2008
60
2007
Poland
2006
70
2005
Serbia
2004
80
2003
Russia
2002
90
2001
Belarus
2000
100
Hungary
9
China, banking system, 2007
Bank type
Policy banks
State-owned commercial
banks
Joint-stock commercial
banks
Urban commercial banks
Rural commercial banks
Foreign banks
Urban credit cooperatives
Rural credit cooperatives
Others
Total
Share, %
of assets
8.2
Share, % of loans
to non-financial
companies
14.7
Share of state
authorities in
equity, %
100*
53.4
47.2
100*
16.9
17.8
> 70*
6.0
1.2
6.3
1.3
100**
100**
1.9
0.4
2.0
0.5
> 75**
8.1
9.8
> 75**
3.8
100
0.4
100
…
* central authorities; ** local authorities
10
Key to interpretation: Institutional matrix
theory

Existing theory offers only partial explanation to
government banking phenomenon.



Development theory (need to finance development in countries
with scarce private capital)
Political theory (politicians use state-controlled banks to extract
rent, to keep power, etc.).
Institutional matrices theory (or Х-Y-theory) offers a
deeper and broader perspective
11
HUMAN SOCIETY……is seen as a social system, as
multiple inter-related social systems, within the main
“sociological co-ordinates” being economy, politics and
ideology. These value spheres are strongly interrelated
morphologically as parts or sides or components of one
complete whole.
Politics
Politics
Ideology
Economy
X- matrix
versus
Y-matrix
Redistributive economy
X
Y
Market economy
13
X- and Y-institutions
in the economy and their functions
Functions of
institutions
Xinstitutions
Yinstitutions
1. Fixing of goods (property
rights system)
Supreme conditional
ownership
Private ownership
2. Transfer of goods
Redistribution
(accumulationcoordinationdistribution)
Exchange
(buying-selling)
3. Interactions between
economic agents
Cooperation
Competition
4. Labor system
Employed (unlimited
term) labor
Contract (short and
medium term) labor
5. Feed-back signals
(effectiveness indexes)
Cost limitation
(Х-efficiency)
Profit maximization
(Y-efficiency)
14
Combinations of X- and Y-matrices
X
X – dominant
Y- complementary
(Russia, China, most Latin
American & Asian countries)
Y
X
Y
Y – dominant
X – complementary
(European and North American
countries)
15
Russia: interpretation




X-matrix institutions have historically prevailed in Russia.
Banking has always been dominated by the state.
Y-matrix institutions play complementary, auxiliary role by
filling gaps left by redistribution
An attempt to replace centralized allocation of resources by
market-led mechanisms failed. Private banks proved to be
unfit; they destroyed value instead of creating it.
Growth of market share of state-owned banks reflects
recovery of the X-matrix institutions.
16
Central and Eastern Europe:
interpretation




In CEE countries the institutions of Y-matrix used to
prevail
After the WW2, X-matrix institutions were imposed by
the USSR
After the fall of the Berlin Wall and the waning of USSR
influence, the “normal” institutional matrix recovered
State-owned banks were privatized to foreign direct
investors. Resource are allocated in a decentralized
way, no directed nor policy lending takes place.
17
China: interpretation



Like in Russia, X-matrix institutions have historically
prevailed
Unlike in Russia, the dominant matrix remain intact.
Reforms aim at gradually complementing X-matrix
institutions by Y-matrix institutions
State-controlled banks stand at the core of the financial
system. The government tries to make them more
competitive and efficient. But directed political lending
prevails over individual market decisions regarding
resource allocation.
18
Conclusions



Market (Y-matrix) institutions grow in Russia, but they
remain complementary to the redistributive (X-matrix)
institutions
Financial system again becomes more centralized. The
state plays an increasingly important role in resource
allocation, through government banking and other
regulation.
The financial crisis overturned the balance in favor of the
institutions of Х-economy. It streamlined the banking
sector with its longer-term trends.
19
Bibliography






Kirdina S. G. (2001), Institutional Matrices and Development
in Russia (2nd edition), Novosibirsk (in Russian).
Kirdina S. (2001), Fundamental Difference in the
Transformation Process between Russia and East European
Countries // Berliner Osteuropa Info, No.16.
Kirdina S. (2010), Institutional matrices theory, in: Sociological
Dictionary, Moscow (in Russian).
Vernikov A., Kirdina S. (2010). Evolution of banking in X- and
Y-economies /Evolutionary economics and finances:
innovation, competition and economic growth. Moscow, 2010
(In Russian)
Vernikov A. (2010) Russian banking: A comeback of the state.
- Economics Working Paper No.104, UCL SSEES Centre for
Comparative Economics, London.
Vernikov A. (2011), Government banking in Russia:
Magnitude and new features, IWH Discussion Papers.
August, No. 13.
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