Bankers prefer to keep cash to themselves than to give out loans before they get sure the market has regained stability. Meanwhile, construction industry, trade and consumer services are in dire straits without the loans they direly need. A depression may come in any day. There are even prospects for an avalanche of bankruptcies to send the stock market tumbling down, warns Mr. Leontyev.
Now is the most lucrative time to start a radical banking reform to establish a refunding system for commercial banks, make the Central Bank take up selective attitudes to such banks, and consolidate the entire banking network.
A refunding system is a must. Bankers must have a place to turn to for urgent loans to cope with their obligations within limits the Central Bank of Russia ought to set. This, and deposit insurance will bring desired stability. The simple management of the compulsory reserve fund that Russia has nowadays lacks whatever system, and is unpredictable.
Central national banks throughout the world offer commercial banks non-guaranteed crediting/refunding limits. If Russia follows the pattern, and offers clear-cut crediting and refunding arrangements, the public will see what banks can be trusted, and the economy will get the money it badly needs. A hundred largest banks and banking groups account for 80 per cent of the Russian banking market. With that, it will not take long to establish desired limits. When a refunding system is set up, and a selective approach to commercial banks emerges, Russian banking will spontaneously consolidate. Unreliable banks will get no loans and refunding, and so will perish without clients. The stronger banks, on the contrary, will gain access to big money to offer loans to the economy, and buy up the small regional banks they consider secure. That will save Russia from an impending regional bank crisis as problems may spread from Moscow to the provinces even this fall.
Today is the best possible time for Russia to launch a banking reform. There is only one, and dire alternative-to wait for spontaneous market developments to put things in their proper places with a mighty though invisible hand. If the matter takes such a turn, Russia will soon be in for a huge banking crisis in which it will look back even at the present, suspense-laden time as quiet days, warns Sergei Leontyev.
