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. Last Updated: 07/27/2016

Protectionism: Fair Deal for Russia's Banks?

Last week the co-chairman of the Party of Economic Freedom, Konstantin Borovoi, organized a meeting of the chairmen of a number of major commercial banks. On the agenda was the vital question of foreign bank's access to the Russian market.


This problem is not a new one. In November of last year, when the first Western banks received licenses from the Central Bank of Russia, the Association of Russian Banks attempted to push a decree through the Supreme Soviet on changes to the banking laws. The essence of the proposed changes was to halt the granting of licenses to foreign banks until Jan. 1, 1994, as well as to reexamine those licenses already granted.


In Russia the word "reexamine" has only one meaning: to take away, or, at least, to freeze. By the middle of November, when this question was raised in parliament, the large Austrian bank, Austria, and the French bank Credit Lyonnais already had licenses from the Central Bank. The Austria Bank received an off-shore license, meaning that its operations in the Russian market are limited to non-residents, while the Credit Lyonnais was given the right to operate as a Russian commercial bank.


The decree was not adopted. According to Russian bankers, who discussed this question last week with Borovoi, the reason for the parliament's decision was corruption among deputies with ties to Western banks. There were also hints of a special interest on the part of the Central Bank.


It is difficult to tell whether or not there is any basis to these suspicions. But it is certain that in spite of the active opposition of the influential banker's lobby, licenses in one form or another were given to several other foreign banks. and the line of those waiting to receive this license is quite impressive.


The situation in the banking sector is essentially different from that in all other spheres of the Russian economy. Approximately 2, 000 commercial banks are waging a fierce competition among themselves. Just as in a real market there are mergers and takeovers, some go bankrupt and others mange to accumulate a large amount of capital. Bankers react fairly calmly to conflicts of this nature. But the appearance on the scene of competitors in a completely different category - competitors to whom they acknowledge defeat in advance - provokes desperate resistance.


Russian bankers are convinced that without protectionism, without some limits on the access of foreign banks, the Russian banking system (meaning the economy as well) will fall under foreign control.


Already foreigners are taking away from Russian banks such choice areas as hard currency operations. It is due to hard currency, and the value of the ruble to the dollar that many banks are able to give large credits, and to develop.


It is difficult to say whether or not Russian bankers will be able to have limits imposed on foreign banks. But it is already obvious, that Borovoi's Party of Economic freedom will make defending Russia's banking, system one of their campaign promises.