Foreign Banks to Bring Off-Shore Ones
// after Russia’s entry into the OECD
Minister of Economic Development and Trade German Gref acknowledged there is a real threat that branches of foreign banks might invade Russia’s market. Despite the agreements reached under WTO negotiations, this issue will be raised again during the talks on Russia’s entry into the Organization for Economic Co-operation and Development (OECD). Experts believe that the Central Bank, and not Russia’s commercial banks, will suffer most of foreign banks’ invasion. They think that many Russian banks will change their legal addresses to off-shores, so as to avoid being controlled by the Central Bank and law-enforcement bodies after returning to Russia.
Speaking of the conditions for Russia’s entry into the WTO, Minister of Economic Development and Trade German Gref said yesterday that “Russia will consider the issue of allowing the branches of foreign banks to the country’s market during the process of negotiations on its entry into the Organization for Economic Co-operation and Development (OECD). Ekaterina Maiorova, head of services and investment department at the Ministry of Economic Development and Trade, explained that “Russia does not have obligations to open its market for the branches of foreign banks.” “However,” she said, “it is likely that the U.S. and Europe might come to us with such requirement.”
Russian authorities have officially admitted for the first time that they are not ready to persist in defending the competitive safety of Russia’s banking system. Head of Russian delegation on joining the WTO Maxim Medvedkov said that during Russia-OECD negotiations there will be just “the first check -- whether we need foreign bank branches or not”. However, experts think that the only concession that Russia can get at OECD talks is the postponement of admitting the branches of foreign banks.
The OECD unites about 30 most economically developed countries. The organization’s goals are to promote international trade, economic growth, and financial stability of its member-states. OECD membership greatly facilitates entering financial markets both for the countries themselves, and for private organizations.
Experts believe that most problems, after the branches of foreign banks are admitted to Russia, will arise with the banks of Russia’s market. The matter is that foreign branches are not under Russian regulatory laws. They act within their own jurisdiction. “If the branches of foreign banks are allowed to Russia’s market, then all Russian ‘junkyards’ (banks dealing with illegal transactions) will be taken to off-shores, unattainable for Russian authorities, from where they will safely keep working in Russia as foreign branches, not adhering to local laws,” said a representative of a Russian bank. Experts estimate the number of such banks at about one third of the 1,200 registered banks in Russia. “Despite the fact that many countries have laws against the legalization of illegal profits -- by means of banking sector as well, there still exist legalization schemes, and the scale of the phenomenon sets a great problem,” said Natalia Matyunina, first vice-president of Nomos-Bank. “Thus, the apprehensions that new legalization schemes might appear when branches of foreign banks are allowed into Russia’s banking system are quite grounded.” “And it is just the iceberg’s upper part: there might arise a greater number of such problems,” added Danila Levchenko, head of macroeconomic research department at Zenit bank.
Experts think that the Central Bank of Russia will have to deal with all these problems. “It definitely deprives the Central Bank of the opportunity to fully control the banking sector,” said Evgeny Nadorshin, analyst of Trust bank. “In order to safely let branches of foreign banks to Russia, it will be necessary to radically change the existing laws, including the Central Bank’s standard acts, to add a new subject of regulation, but it is extremely difficult,” explained Levchenko. “When branches of foreign banks come to Russia, it will be harder for the Central Bank to maintain consolidated control over them, so as to avoid possible violations,” added Alexei Terekhov, director of bank audit department at FBK (Financial and Accounting Consultants) company. “Besides, it will be harder to manage the amount of monetary stock, because Western bank branches, unlike Russian banks, are not obliged to allocate funds to the Central Bank’s deposits.”
Some experts believe that in order to solve these problems, the Central Bank might introduce restrictions for branches of banks to be allowed to work in Russia. It might restrict admittance for banks according to their country of origin, or capital stock and assets. “The law may be changed in such a way that there will be no big difference between the working conditions for branches and for subsidiaries of foreign banks,” said Vladislav Reznik, head of the State Duma’s banking committee.
Svetlana Dementyeva, Anna Inozemtseva, Igor Moiseev
All the Article in Russian as of Feb. 08, 2007
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