But Andrei Kazmin said he supported the government's position at talks on Russia's accession to the World Trade Organization that a ban on foreign bank branches should continue to stay in effect, an issue that has dogged the country's bid to join the body governing global trade.
"All industrial nations establish similar requirements," Kazmin said.
Deputy Prime Minister Alexander Zhukov said in turn that non-residents' holdings in the aggregate value of Russian banking capital could be raised to 15-20% (compared to slightly more than 11% in early 2006).
"Nothing terrifying will happen if this figure goes up to 15-20%," Zhukov said.
The deputy prime minister however said the government would stand firm on its ban of foreign bank branches in Russia because otherwise this would lead to a loss of control.
But Zhukov said Russia had nothing against the operation of foreign bank subsidiaries in the country because they functioned under Russian legislation.
The problem of admitting foreign residents to Russian financial markets emerged as the country launched its bid to become integrated into the global economy. It remains one of the main obstacles in Russia's WTO accession talks.
At present, Russian legislation prohibits foreign banks to open branches in the country. But they may set up subsidiaries, for example, a joint stock company set up under Russian law with a certain share of foreign capital. This is the plan used by such international giants as Citibank, Raiffeisen Bank and others. A subsidiary functions in compliance with Russian legislation as a separate legal entity and must abide by the Russian Central Bank's instructions. The Central Bank can supervise its activities and impose sanctions in the event of violations.
The Central Bank has fewer possibilities to control branches. A branch is a division of its parent bank and, therefore, abides by the instructions of the parent bank and the laws of its country of origin. In this case, any operations between a branch and its parent company are operations within one structure that cannot be fully controlled by Russia's monetary authorities.
