The first and the main result of the reform is that the deposit insurance system is stimulating households' investment activity. Today most Russian citizens are still cautious about banks. Many people continue to keep their savings under the mattresses (from 60 billion rubles to 75 billion rubles, according to various estimates). However, the situation is gradually changing for the better and the deposit insurance system is also contributing to that. A poll held on the request of the above Deposit Insurance Agency indicates that after the law on deposit insurance came into force, the confidence of every fourth depositor in banks increased. Also, 8% of the polled enlarged their bank deposits in 2004 and 45% of them took this decision after the bank insurance system was introduced.
Second, the deposit insurance system will revitalize the processes of banks' specialization and reorganization taking place in Russia. A part of banks offering retail services gave up voluntarily their participation in the deposit insurance system. Such banks have several options for their further development. They will have either to focus on services to corporate clients or to merge with other banks. Experts agree that major Russian banks expanding their branch network and new foreign banks wishing to enter the Russian market at a low cost will be interested in such take-overs.
Third, deposit insurance is an important instrument to create a competitive environment. The new system, which creates equal conditions for all banks and guarantees the safekeeping of individual deposits, will enable medium-sized banks to look more attractive for depositors. By offering higher yields, they will take away a part of clients from large-sized banks while the share of major operators on the private deposit market, first of all, Sberbank, which holds almost monopoly positions, may drop.
Finally, the banks wishing to join the deposit insurance system have to prove their financial sustainability to the Bank of Russia. Therefore, the introduction of the law on household deposit insurance will revitalize the Russian banking system as a whole. A considerable part of the banks that have been admitted to the deposit insurance system have improved their asset reliability and transparency. Alexander Turbanov, director of the Deposit Insurance Agency, is confident that there will be no bankruptcies this year among the banks admitted to the insurance system.
Like any innovation, the deposit insurance system also causes some fears. The deposit insurance fund is partially financed by the state and partially through banks' deductions. Therefore, this mechanism increases the prime cost of banks' retail services. That is why, some analysts expect the higher cost of loans and lower interest rates on individual deposits.
Formally, deposit interest rates do not depend on whether a bank is a member of the deposit insurance system. Representatives of the Deposit Insurance Agency are trying to convince the public that lower interest rates can be explained by other reasons. According to Alexander Turbanov, this is an objective process witnessed in the past few years, which can be attributed to the development of the economy as a whole and the lower inflation level.
However, according to Vladimir Kustov, head of the individual deposit department of the Moscow Credit Bank, deposit interest rates can, indeed, be expected to go down a little this year. In the first place, this can be explained by the fact that the banks, which have joined the deposit insurance system, will have to make deductions to the special fund.
Nevertheless, as renowned economist Alexander Shokhin says, the banking environment will improve in Russia as a result of the introduction of the deposit insurance system by mid-2005.
