Econonics/ Banks and bank system

Doctor of Science (д.ю.н.), full professor E.E. Frolova

People’s Friendship University of Russia, Russian Federation

Doctor of Philisophy (к.ю.н.), N.A. Voykova

The Russian Presidential Academy of National Economy and Public Administration, Russian Federation

Economic and social aspects of bank crisis

The bank system is important part of the developed political, legal and economic industry of public life, - in the measure greatest, in our opinion, promotes socio-political stability and economic growth, and also, on the other hand, can provoke the crisis phenomena coming for the public.

Bankruptcy of banks, owing to a pronounced component of publicity of their activities covering all industries of economy and a general population, causes special public attention to this phenomenon, dictates essential features of legal regulation. Regulation of insolvency proceedings from the legal point of view is directed on minimizing the damage caused creditors, to provide adequate consideration of their requirements. The techniques of the early prevention of insolvency accepted in world practice and forecasting of activities of the credit organizations are based on rather high level of reliability of the reporting of banks. In the Russian reality the condition of reliability of the reporting of banks isn't always complied. The essence of crisis management in banking sector is a set of the managerial actions having complex, system nature, directed on prevention or elimination of the adverse phenomena for banking business by means of use of potential of intra bank management, development and implementation of special strategic programs by business community and the state, etc., stimulating the maximum increase of immunity of bank institutes in case of a support on loan resources own and provided on probably preferential terms.

It should be noted that the mentioned anti-recessionary regulation (management) has the purpose maintenance of stability and stability of the bank sphere in the Russian Federation.

The purposes of this regulation are permanent and are performed continuously in case of implementation by the state of the regulating powers. We consider reasonable that regulation is performed in two directions: support of financial stability of a bank system, and also acceptance of necessary measures for financial improvement of the separate credit organizations, a having rating of the Central Bank of Russia, appeared in an undesirable financial position, both depositor protection and creditors as they, in our opinion, are the main object on which activities of the credit organizations are directed.

The problem of regulation of a bank system – ensuring stability of the credit organizations and the direction of their activities to that course which at this stage corresponds to interests of development of macroeconomic processes, without breaking thus action of the fundamental market laws.

The state bodies performing administrative legal regulation of banking activity implement the functions concerning management of a bank system regarding risk minimization, management of a bank system for the purpose of non-admission of bankruptcy. These functions are applied in a bank system as a whole. The functions applied to the separate credit organizations, following: it actions for maintenance of stability of the credit organizations by means of available tools and improving actions concerning the separate credit organizations.

Aggravation of crisis problems leads to public awareness of need of the state support of banks and development of governmental programs for restructuring of a bank system, forming of special mechanisms of restructuring. The complex system is necessary for prevention of development of the arising crisis phenomena in banking sector and minimization of their negative consequences crisis management. From that, it is how deep and complex ensuring control of bank activities on all sites of its work highly skilled and in a special way trained specialists (risk managers) will be interested to be performed, and anti-recessionary adaptability of bank will depend. The most important line of a risk management in banks – aspiration of interested persons not to allow liquidation of the problem organization, participants (founders) and clients of bank shall be interested in it. Otherwise the probability of return of money will be equal to zero.

On the basis of the document of the advisory nature issued by Basel Committee on Banking Supervision in 2012, effective banking supervision generalizing the key principles which, in fact, aim at crisis management by a bank system, we believe reasonable the principle analysis "Assessment of an existing risk management". The purpose of creation of this principle is creation of crisis management by a bank system for the purpose of maintenance of its stability.

Also, it is represented that for the purpose of implementation of legal principles and legal guarantees of society, it is necessary to solve, in particular, an activities and stay problem in the market of banking services of the unfair credit organizations. We consider that the credit organization is unfair in case of different implementation of frauds on crediting of physical persons and payments on household deposits. It is obvious that the bank system is important part of the developed political, legal and economic industry of public life, - in the greatest measure promotes socio-political stability and economic growth, and also, on the other hand, can provoke the crisis phenomena coming for the public. It is represented that the instability condition in the state conducts to loss of trust of society to the state.

Considering the specified thesis, it is necessary to emphasize that this phenomenon is characteristic not only for the Russian Federation, but also for each state having the bank system. In connection with decrease in stability in the bank sphere, the depositor confidence to the credit organizations decreases also. Along with loss of stability of the bank sphere, the condition of instability is shown in all spheres of life of the state, experience of functioning of modern Russia as the states with insufficiently stable economy confirms the thesis about social and legal, and not just the economic nature of a bank system and the monetary relations. It is represented that social and legal nature of the relations of the bank sphere shall be considered not only in case of creation of reforms, but, also, in case of planned (in not crisis conditions) activities of state bodies of the Russian Federation.

However, consideration of the phenomenon of crisis from the point of view of social legal relations in the state society, is, undoubtedly, not the only possible option of overcoming of the crisis phenomena. Also, it is necessary to consider an economic component of crisis. The international community and the governments of the certain states has the right to apply the measures limiting possibilities of use of bank and other types of activity in the bank sphere in the antisocial purposes. As a result, the interested states limit possibility of the reasons and the conditions, capable to cause approach of negative social, economic and political consequences for the citizens and the international community as a whole.

Requirements and an area of interest of participants of the relations, arising during bank crisis, it is necessary to regulate at legislative level because of impossibility of functioning of a bank system of the state in case of contradictions of participants of the mentioned relations. In case of the mentioned contradictions, it is necessary to consider that these contradictions arise between society and the state that leads to various negative consequences, including to mistrust to the government from the population. During crisis we consider such option of succession of events as a last resort. It is necessary to watch emergence of the similar phenomena and for their overcoming to take the measures based on effective positive intervention of the state, on creation and functioning of the mechanism of protection of the rights and legitimate interests of all participants of the economic relations, on real use of the market competition.

Accruing risks in financial and credit and the bank sphere considerably complicate activities of finance regulators, put before them new tasks requiring the operational decision in the sphere of supervision of financial institutions. In the bank sphere constantly functioning in the conditions connected with threat of emergence of various risks, it is necessary to review extremely quickly approaches to regulation and supervision of activities of credit institutes. Review is required also by some questions of the concept of regulation of a bank system from the state. It is necessary to use the market oriented methods of management and risk control of the credit organizations. Banking supervisor authorities already should reconstruct style and methods of the activities, to increase its efficiency and to develop preventiveness, to optimize own organizational structure, to enhance technologies.

Thus, it is possible to conclude that bankruptcy of accounting entities as extreme result of negative impact of crisis is a natural process of clarification of the market from noncompetitive, impractical structures. The fact of bankruptcy means that the accounting entity (in our case, bank) appeared incapable to answer for the obligations that inevitably entailed to damnification to creditors.

Economic literature contains a number of concepts of competitiveness of various elements of a bank system, however, modern economic conditions fully prove frailty of many of them. Thus, there was a need of urgent reconsideration of a role of banking sector at the present stage of economic development, systematization of the saved up experience of yuridiko-legal anti-recessionary regulation in the conditions of globalization of bank systems.

One of methods of ensuring financial stability when preserving benefits from participation in global financial cooperation, is implementation of requirements to organizations which violate the established standard rates, to support the equity at higher level, than it is offered the minimum regulations of capital adequacy. The minimum regulations are known as system of standard rates of sufficiency "Basel II".

It seems reasonable to draw the following conclusions for understanding of a situation which was observed in the first decade of existence of a bank system in the Russian Federation:

1. As the beginning of formation of modern market economy and, in particular, a bank system of Russia occurred not so long ago concerning history of development of economy of the European countries and the USA, it is obviously possible to push the thesis according to which by 1998 in Russia the organization-legal conditions providing the favorable investment climate weren't created and for this reason in the Russian market there was no large volume of the foreign equity;

2. Since the beginning of functioning of a bank system of the Russian Federation and before crisis of 1998, funds of obligatory reservation weren't created in banks, and the Government of the Russian Federation absolutely without loss for itself refused the liabilities. Creation of funds of obligatory reservation that was expressed in the direction by banks of non-cash in strictly certain share from amount of liabilities of bank on the deposits attracted with it to the allowance, being under control of Central Bank of the Russian Federation became necessary. Besides, by the Government of the Russian Federation reserve requirements for banks to leave at the disposal of the last more than assets were reduced. Deposits of the population were transferred to Savings bank of the Russian Federation. It served as some kind of guarantee for investors as in reliability of other credit organizations of confidence wasn't. Banks obtained the credits from Central Bank of Russia. However, unfortunately, there was no list of formally certain criteria by which the Central Bank of Russia was guided when refinancing the credit organizations that, in our opinion, attracted refinancing of the banks which management had informal positive relations with senior representatives of the government. In our opinion, this situation is admissible to compare to existence in the USA of the term: "too big to fail" - "too big to fail", "too big to allow it to go out of business" (the translation in sense). Financial crisis of 2008 showed that the largest banks of the USA expanded to such size that they can't simply be made bankrupt without significant damage for all national bank system as a whole (the principle of "too big to fail"). For this reason the U.S. Government was forced to invest hundreds billions dollars in such finance corporations as Citigroup and AIG, reasoning for it that their fall would bring incommensurably more destructive effects for financial sector and economy as a whole.

3. Despite all above-mentioned, legal regulation of banking supervision in Russia during crisis corresponded to the Basel principles of effective banking supervision of 1988 (Basel Capital Accord). At the same time, it was necessary to create the legal basis of the status and powers of territorial organizations of Bank of Russia as there was "decentralization" of banking supervision. The sense of "decentralization" consists in expansion of limits of maintaining and the power of local administrative authorities and organizations of local authority of territorial organizations of Central Bank of the Russian Federation. However the problem of this "decentralization" is that, in our opinion, employees of territorial organizations of Bank of Russia weren't professionally prepared for implementation of the necessary functions assigned to them – in view of shortage of qualified personnel.