News / Economy

Russians See No Cause for Alarm in Crackdown on Shadow Banking

The company logo of Master Bank is seen outside a branch in Moscow, Nov. 20, 2013.
The company logo of Master Bank is seen outside a branch in Moscow, Nov. 20, 2013.
Reuters
The problems exposed in Russia's banking system by last week's collapse of mid-sized lender Master Bank are deep-rooted, but in contrast with banking failures of the past, there was no evidence this time of other banks' customers taking fright.
 
That seems surprising to analysts, as the collapse has highlighted the difficulty of enforcing regulations against banks with strong political connections, and the widespread use of illegal payments to service Russia's large black economy.
 
“Other banks are in the same situation as Master Bank, that's for sure,” said Alexander Lebedev, a media tycoon and banker. “Whether the central bank will have enough guts [to act] - let's wait and see.”
 
The central bank withdrew the license of Master Bank on Wednesday, citing “large-scale dubious operations” and payment difficulties for clients and some other banks that used it to process card transactions.
 
“We don't see any rise in the rates on the interbank market or on the government bond market, so it's a very local event,” said Maxim Osadchy, head analyst at BKF bank, in Moscow.
 
The bank ranked as the 72nd largest lender by assets in a country which has more than 900 banks, but most are tiny. Even the size of Master Bank's operations for processing card payments, around $1.5 billion a month, was relatively small for a sector with assets totaling $1.7 trillion.
 
New Psychology
 
The relative calm that followed Master Bank's failure also reflects changes in the regulation of the sector and public confidence in recent years, said Richard Hainsworth, head of local ratings agency RusRating.
 
He drew a distinction with banking crises in 1998, the year of Russia's cataclysmic financial crash, and 2004, when the failure of a small bank called Sodbiznesbank provoked deposit runs.
 
Since then, the government has helped calm nerves with state-backed deposit insurance under which the government guarantees up to 700,000 roubles ($21,200) for each saver.
 
“In 1998 there were fisticuffs outside the doors of banks,” he said. “That doesn't happen any more because people are confident they'll get their money back.”
 
Hainsworth saw a greater similarity between the current incident and the failure of International Industrial Bank, a mid-sized bank that folded in 2010 after a long period of speculation about its shaky finances.
 
“In both cases, the senior managers and owners of the bank had very strong connections with the political elite,” he said. “It wasn't that [Sergei] Ignatyev, the previous head of the central bank, was powerless. But he was constrained by the political conditions in which he was working,” continued Hainsworth.
 
Igor Putin, a distant cousin of President Vladimir Putin, was on Master Bank's board. Russian commentators have also speculated over protection from officials in law-enforcement agencies. “Clearly there has been protection - a krysha [roof), as we put it,” said Lebedev.
 
Although many analysts have praised the central bank's new governor, Elvira Nabiullina, for taking tough steps against Master Bank, some have questioned why it took so long.
 
Russian police first announced a criminal investigation into Master Bank in April of last year. Since then, the bank not only took in more retail deposits, but also expanded its loans, which are now unlikely to be recovered.
 
The central bank has said that in total, the bank has made around 20 billion roubles ($600 million) in loans to related parties, including its own shareholders.
 
Master Bank's main owner, Boris Bulochnik, has not commented publicly since the bank's license was withdrawn. His whereabouts are unknown.
 
Black Cash
 
Another troubling issue highlighted by the Master Bank affair is the role of banks in servicing Russia's large shadow economy, analysts said.
 
Police have accused the bank of illegal “encashment” of over 2 billion roubles, while the central bank has estimated the total volume of “dubious” encashment operations by the bank amounted to 200 billion roubles.
 
“Encashment” refers to a practice whereby banks undertake transactions for clients using cash, rather than electronically, as required by law for large transactions.
 
“So-called 'black cash' is used for bribes, for payment of wages, for evading taxes,” explained Osadchy, who estimates the annual volume of black cash transactions in Russia amounts to around $40 billion.
 
Despite the scale of the problem, or perhaps because of it, it was unlikely that the withdrawal of Master Bank's license would lead to a wave of similar bank closures by the authorities, he said.
 
“The fund for guaranteeing deposits isn't limitless,” Osadchy said. “I would even say that this system of black banking is too big to fail.”

You May Like

Beloved Lion Killing Sparks Virtual, Real Life Outrage

Twitter, as usual, was epicenter for anger directed at Palmer, with some questioning his manhood, calling for him to be released into the wild More

Video Booming London Property Market a Haven for Dirty Money

Billions of dollars from proceeds of crime, especially from Russia, being laundered through London property market, according to anti-corruption activists More

Video Scouts' Decision on Gays Meets Acceptance in Founder's Hometown

One former Scout leader thinks organization will move past political, social debate, get back to its primary focus of turning boys into good citizens More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Booming London Property a ‘Haven for Dirty Money’i
X
July 29, 2015 9:34 PM
Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Booming London Property a ‘Haven for Dirty Money’

Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Hometown of Boy Scouts of America Founder reacts to Gay Leader Decision

Ottawa, Illinois, is the hometown of W.D. Boyce, who founded the Boy Scouts of America in 1910. In Ottawa, where Scouting remains an important part of the legacy of the community, the end of the organization's ban on openly gay adult leaders was seen as inevitable. VOA's Kane Farabaugh reports.
Video

Video 'Metal Muscles' Flex a New Bionic Hand

Artificial limbs, including the most complex of them – the human hand – are getting more life-like and useful due to constant advances in tiny hydraulic, pneumatic and electric motors called actuators. But now, as VOA’s George Putic reports, scientists in Germany say the future of the prosthetic hand may lie not in motors but in wires that can ‘remember’ their shape.
Video

Video Russia Accused of Abusing Interpol to Pursue Opponents

A British pro-democracy group has accused Russia of abusing the global law enforcement agency Interpol by requesting the arrest and extradition of political opponents. A new report by the group notes such requests can mean the accused are unable to travel and are often unable to open bank accounts. VOA's Henry Ridgwell reports.
Video

Video 'Positive Atmosphere' Points Toward TPP Trade Deal in Hawaii

Talks on a major new trade agreement among 12 Pacific Rim nations are said to be nearing completion in Hawaii. Some trade experts say the "positive atmosphere" at the discussions could mean a deal is within reach, but there is still hard bargaining to be done over many issues and products, including U.S. drugs and Japanese rice. VOA's Jim Randle reports.
Video

Video Genome Initiative Urgently Moves to Freeze DNA Before Species Go Extinct

Earth is in the midst of its sixth mass extinction. The last such event was caused by an asteroid 66 million years ago. It killed off the dinosaurs and practically everything else. So scientists are in a race against time to classify the estimated 11 million species alive today. So far only 2 million are described by science, and researchers are worried many will disappear before they even have a name. VOA’s Rosanne Skirble reports.
Video

Video Scientists: One-Dose Malaria Cure is Possible

Scientists have long been trying to develop an effective protection and cure for malaria - one of the deadliest diseases that affects people in tropical areas, especially children. As the World Health Organization announces plans to begin clinical trials of a promising new vaccine, scientists in South Africa report that they too are at an important threshold. George Putic reports, they are testing a compound that could be a single-dose cure for malaria.
Video

Video 'New York' Magazine Features 35 Cosby Accusers

The latest issue of 'New York' magazine features 35 women who say they were drugged and raped by film and television celebrity Bill Cosby. The women are aged from 44 to 80 and come from different walks of life and races. The magazine interviewed each of them separately, but Zlatica Hoke reports their stories are similar.
Video

Video US Calls Fight Against Human Trafficking a Must Win

The United States is promising not to give up its fight against what Secretary of State John Kerry calls the “scourge” of modern slavery. Officials released the country’s annual human trafficking report Monday – a report that’s being met with some criticism. VOA’s National Security correspondent Jeff Seldin has more from the State Department.
Video

Video Washington DC Underground Streetcar Station to Become Arts Venue

Abandoned more than 50 years ago, the underground streetcar station in Washington D.C.’s historic DuPont Circle district is about to be reborn. The plan calls for turning the spacious underground platforms - once meant to be a transportation hub, - into a unique space for art exhibitions, presentations, concerts and even a film set. Roman Mamonov has more from beneath the streets of the U.S. capital. Joy Wagner narrates his report.
Video

Video Europe’s Twin Crises Collide in Greece as Migrant Numbers Soar

Greece has replaced Italy as the main gateway for migrants into Europe, with more than 100,000 arrivals in the first six months of 2015. Many want to move further into Europe and escape Greece’s economic crisis, but they face widespread dangers on the journey overland through the Balkans. VOA's Henry Ridgwell reports.
Video

Video Stink Intensifies as Lebanon’s Trash Crisis Continues

After the closure of a major rubbish dump a week ago, the streets of Beirut are filling up with trash. Having failed to draw up a plan B, politicians are struggling to deal with the problem. John Owens has more for VOA from Beirut.
Video

Video Paris Rolls Out Blueprint to Fight Climate Change

A U.N. climate conference in December aims to produce an ambitious agreement to fight heat-trapping greenhouse gases. But many local governments are not waiting, and have drafted their own climate action plans. That’s the case with Paris — which is getting special attention, since it’s hosting the climate summit. Lisa Bryant takes a look for VOA at the transformation of the French capital into an eco-city.
Video

Video Racially Diverse Spider-Man Takes Center Stage

Whether it’s in a comic book or on the big screen, fans have always known the man behind the Spider-Man mask as Peter Parker. But that is changing, at least in the comic book world. Marvel Comics announced that a character called Miles Morales will replace Peter Parker as Spider-Man in a new comic book series. He is half Latino, half African American, and he is quite popular among comic book fans. Correspondent Elizabeth Lee reports from Los Angeles.
Video

Video Historic Symbol Is Theme of Vibrant New Show

A new exhibit in Washington is paying tribute to the American flag with a wide and eclectic selection of artwork that uses the historic symbol as its central theme. VOA’s Julie Taboh was at the DC Chamber of Commerce for the show’s opening.

VOA Blogs

World Currencies

EUR
USD
0.9066
JPY
USD
123.75
GBP
USD
0.6394
CAD
USD
1.2954
INR
USD
63.904

Rates may not be current.