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. Last Updated: 07/27/2016

Central Bank May Be Stripped of Powers

Under a proposal presented in the State Duma, the Central Bank could be stripped of its regulatory powers.

A new "mega-regulator" could assume this function and police the banking sector instead, the deputy head of the Duma's Credit Organizations and Financial Markets Committee said Wednesday.

"There have been many objections raised that the Central Bank is overstepping its bounds in regard to certain laws. Its decisions were not always objective, and there are often conflicts of interest between the Central Bank and the banks its oversees," said Anatoly Aksakov, who is also president of the Association of Regional Banks.

"We need a mega-regulator for the entire financial sector," he said.

This regulator would oversee banks, markets and the insurance industry, and could be established after three to five years of legislative work and reshuffling among existing structures, Aksakov said by telephone from Germany.

In a surprise move, Duma Speaker Boris Gryzlov on Tuesday suggested the possibility of repealing the Central Bank's powers to revoke bank licenses and enforce banking laws.

Vladislav Reznik, head of the Credit Organizations and Financial Markets Committee, spoke in support of the proposal Tuesday.

Central Bank Chairman Sergei Ignatyev and Gennady Melikyan, his first deputy, rebuffed the proposal at the Duma session, Kommersant reported.

Melikyan replaced murdered first deputy chairman Andrei Kozlov, whose crusade to rid the financial sector of criminal banks is widely viewed to have prompted his shooting outside a Moscow football stadium in September.

The Central Bank has the last word on granting licenses to banks, and Kozlov shut down 44 banks in 2006 alone. In 2004, Kozlov revoked the license of VIP-Bank, and held firm even after a court ruled that the license was revoked without sufficient cause. The CEO of VIP-Bank, Alexei Frenkel, has been charged with ordering Kozlov's killing.

Aksakov said the idea to strip the Central Bank of its regulatory powers stemmed in part from decisions made during Kozlov's tenure. "To some extent, his work influenced the discussion," Aksakov said.

Richard Hainsworth, head of RusRating, the country's biggest bank rating agency, said Tuesday's proposal was a politically motivated attack against the Central Bank.

"In fact, it is the Central Bank's strength and its integrity that has brought up so much political opposition because it has implemented various reforms that have influenced interest groups with various political connections," Hainsworth said.

He added that it would be "ill advised" for the government to scale back the Central Bank's powers.

"If there should be any mega-regulator it should be the Central Bank," Hainsworth said.

Aksakov said he had surveyed the members of the Association of Regional Banks, and 75 percent of them supported the Central Bank's right to enforce the law.

"I don't know who is promoting their own agendas here," said Andrew Keeley, banking analyst at Troika Dialog. "But I cannot see the Central Bank losing its regulating powers."