In the run-up to the coming autumn Duma session we will come up with a package of amendments to legislation to allow the Bank of Russia to set up a special-purpose Banking Sector Consolidation Fund. This fund would be a participant in the equity of banks under resolution. Also, a dedicated management company would be created to provide operational management to a bank under resolution. In such a scheme, the central bank would oversee the bank turnaround programme. Capitalisation support would come in quickly, available immediately; where necessary, resolution would involve both reorganisation and merger. Either of these would be followed by sale of banks, recovered to a satisfactory financial condition. Thanks to the new model to migrate to, the processes of bank resolution are sure to become less inexpensive, faster, more manageable and overall more effective. We will see banks under resolution being reorganised so as to ensure that financial recovery yields maximum results and raises investment appeal of such banks. Concurrently, this will predetermine optimisation of the banking sector’s structure. Both commercial banks and private investors would be able to enjoy the outcomes as they acquire well performing banks and those with capital top-up. Apparently, the mechanism will be the subject for discussion with the bank community. Looking forward, I would like to tell you that we have looked into potential risks this approach involves. Here are our key findings. The risk of banking sector becoming nationalised. In our understanding, we are running no such risk, for two reasons.
Where the operations of a bank / financial holding company also include non-finance companies (industrial, construction, commercial), such holding would need to set up (or designate) a management company, which will consolidate the statements of the holding’s financial institutions and to which the powers to manage such companies would be assigned. A similar management company for bank and financial assets would need to be created by owners of parallel financial institutions, as well as by holdings and associations where the parent organisation is located overseas. It is important to us that this management company should be in the Russian jurisdiction. We envisage no need for any separate licensing of its activity, as long as it would be covered by the requirements for reporting consolidation, requirements for consolidation-based calculation of required ratios and their observance, as well as those for risk management systems, internal controls and the composition of management as are currently applicable for regulated financial institutions. The Bank of Russia should be authorised to take regulatory action against such parent organisation. We will detail our plans for regulation of banking and financial holding companies in a separate consultation report to be released shortly for public discussion. We will be ready to discuss the report in detail with all market participants. On a final note on the banking sector, I would like to announce another initiative, which is perhaps of a minor scale than those announced today, but still very topical.