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. Last Updated: 07/27/2016

Deposit Insurance Bill Delayed

The State Duma has decided to postpone the reading of a law on deposit insurance that is seen as a cornerstone of banking reform, Pavel Medvedev, deputy head of the Duma's credit and finance committee, said Tuesday.

The bill aims to protect private depositors against loss if their bank goes bankrupt. It would erode the de facto monopoly of state-run Sberbank and facilitate the growth of a private banking industry. It would also allow the Central Bank, in charge of bringing banks under the deposit insurance umbrella, to weed out poor performers.

"Nobody from the Duma Council was insisting the legislation would be debated during this session," Medvedev said.

The council decides which draft legislation should be included on the parliamentary agenda. The bill, which has been in the works for almost a decade, is now scheduled for debate in September and must pass three readings.

"Unfortunately it delays the quality control that the Central Bank wanted to establish, and another unfortunate thing is that it shows the influence of vested interests," said Christof R?hl, the World Bank's chief economist in Moscow.

"The likely reason why the bill has stalled is that Sberbank wants to try to protect its position as it has been lobbying very hard to not have its guarantee taken away and also not wanting to pay into the deposit insurance scheme," said Al Breach, chief economist at Brunswick UBS.

Russia has more than 1,200 banks but only Sberbank, the country's largest, enjoys state guarantees for private deposits. That is widely perceived as giving Sberbank an unfair advantage over private banks. As of the end of February there were 1.4 trillion rubles ($45.69 billion) on deposit in private accounts in banks, with Sberbank holding 70 percent of the money.

Economists said some private banks, hoping to avoid Central Bank scrutiny, were also cold-shouldering the bill.

But Breach played down the delay as the best private banks are already winning the trust of many Russians without deposit insurance legislation.

"It is more important to get this stuff right than to get it quickly," Breach said.