Under the new law, existing banks will be granted a "grandfather clause," allowing them to operate with a lower capital requirement. But these banks will have their licenses revoked if their capital drops below the level recorded at the time when the law comes into effect. This is expected to happen in 2007.
According to the Central Bank, Russia currently has 1,451 credit institutions of which 1,398 are categorized as banks. Of the total number of credit institutions, 510 have authorized capital of less than 30 million rubles ($1 million).
The new legislation will be an important first step toward restructuring Russia's banking system, which has remained largely untouched since the 1998 financial crisis. Moscow's investment community has welcomed the government's decision, though disappointment has been expressed that the law should be applied to all banks, i.e. without a "grandfather clause" for existing banks. Undercapitalized banks are attributed to have been the reason for the mini-banking crisis in the summer of 2004 that saw a number of medium-size banks collapse and depositor confidence damaged.
