On December 27, 2003, the Federal Law āOn Insurance of Deposits of Individuals with Banks of the Russian Federationā (hereinafter the Law) entered into force in the Russian Federation. About ten years of painstaking work, fierce discussions, disputes still allowed us to develop a new financial mechanism for the Russian banking system - a deposit insurance system (CER). The basis for the emergence of CERs was the crisis in the global economy in the 30s of the last century. For the first time, this form of activity appeared in the US banking sector in 1933. The presence of a state system that ensures the reliability of deposits in banks of the EU countries is a prerequisite for the success of the financial sector of the state.
Against the background of world practice, the work of the banking financial system in the Russian Federation did not look reliable enough from the point of view of investors. This state of affairs significantly reduced the inflow of free capital into the banking sector.
The development of a deposit insurance system is designed to have a stabilizing effect on the entire banking system. After the events of 1998, when a significant part of depositors lost their savings, confidence in banks in Russia was undermined. This could not but adversely affect the inflow of free capital into the banking sector.
This prompted the development of a regulatory framework governing compulsory insurance of population deposits. For the Russian financial system, this is the most important program implemented by the banking community in conjunction with the state. The result of this joint activity is an increase in the confidence of individuals in the banking sector.
CER goals
By implementing the right financial policy, it is possible to achieve the goals set by the system of compulsory deposit insurance:
- increase confidence in the work of banks, thereby motivating potential investors;
- protect the rights of depositors of Russian banks;
- to attract the savings of citizens in the banking sector.
At the same time, it is extremely important that none of the goals is a priority. Since as soon as there is a shift in achieving one of the goals, crisis manifestations begin to occur in the banking sector, which invariably entails an increase in risks for depositors. The basis for achieving all of the goals is the stable development of the banking financial system.
CER Principles
The basic principles on which the deposit insurance system in Russia is based are legally enshrined in article 3 of the Law.
All banks of the Russian Federation that have the right to open and maintain accounts from private individuals are required to be members of the CERs. Banks participating in the deposit insurance system are required to:
- Regularly transfer insurance contributions to the CER fund, ensuring the accumulative nature of the filling of the fund. In addition to contributions, penalties are applied to banks for untimely fulfillment of their duties. Penalties are also a source of replenishment of the fund.
- Notify their clients about participation in CERs, the amount of insurance payments by informing on stands in public places.
- Keep an up-to-date register of bank loan obligations.
- Fulfill other obligations stipulated by the Law.
The risks of depositors should be reduced as much as possible when banks are not able to fulfill obligations to customers.
CER activities should be transparent. This implies access of potential investors to information on the functioning of CERs.
Some more principles of functioning of CERs
In addition to the points listed above, additional principles can be deduced from the Law:
- participants in the system have the opportunity to become exclusively financially stable banks of the Russian Federation;
- insurance payments are restrictive;
- The maximum rate of insurance payments must be respected.
The principle of admission of financially sound banks ensures that only financial institutions that satisfy high financial position requirements can become CER participants. So, to achieve this goal, the Central Bank of the Russian Federation conducts regular and thorough checks of existing banks. During the audit, the liquidity of the institutionās assets, profitability, management level and much more are evaluated. This eliminates the āproblemā banks and minimize the risks of non-return of finances.
The deposit insurance system is a limited compensation return mechanism. In accordance with Article 11 of the Law, in insured events (failure by the bank to fulfill its obligations), the depositor can expect to pay out 100% of all deposits made at the bank, taking into account the accrued interest.
Refunds on deposits of cash and accrued interest are carried out in rubles. Deposits in foreign currency are converted at the exchange rate of the Bank of Russia at the time of the insured event. Provided that the client has accounts in several banks, compensation is carried out separately for each financial organization. The presence of a loan agreement with the bank can reduce the amount of compensation by the amount of the loan.
Insurance payments on deposits in the world practice are made within 30 days. It is believed that a longer repayment period may cause panic and reduce confidence in CERs.
Participants in the deposit insurance system
Depending on the assigned obligations, the following CER participants are divided:
- Insured - banks in the deposit insurance system, entered in the registry of the system. Every bank has the right to become a participant in CERs, provided that it has a license issued by the Central Bank of the Russian Federation to attract free funds of the population in order to open cash deposits. You can get information about the bankās participation in the deposit insurance system in the Russian Federation on the DIA website, in the bank itself.
- Beneficiary - depositors, bank customers with the right to apply for insurance payments.
- An insurer is a body whose duties include monitoring the activities of CERs, namely the Deposit Insurance Agency (DIA).
- The body with supervisory obligations is the Bank of Russia.
In addition, the Government of the Russian Federation takes an active part in the work of the system, in particular, it is entrusted with monitoring the functioning of CERs.
Deposit Insurance Agency
DIA plays a key role in providing a deposit insurance system. Part 2 of Article 15 of the Law defines the list of powers of the Agency:
- accounting and register of banking organizations;
- accumulation of insurance premiums, ensuring control and safety of the fund;
- taking into account the requests of depositors and fulfilling their legal requirements;
- appeal to the Bank of Russia in cases of violation by the Bank of the Law and the requirement to apply liability measures;
- investing free fund assets;
- control of banks regarding compliance with the requirements provided for by the Law;
- determination of the mechanism for calculating and paying banks mandatory contributions.
Deposits not participating in the SAF
Section 5 of the Law establishes that the deposit insurance system of individuals covers most of them, with the exception of:
- accounts opened in branches of Russian banks located abroad;
- bearer deposits;
- contributions of individual entrepreneurs, lawyers, notaries, which are open for the purpose of entrepreneurial activity;
- deposits transferred to the bank in trust;
- money in electronic accounts;
- depersonalized metal bills.
Deposit insurance is provided by law and does not require a special contract.
Insured events
CERs include several cases involving the payment of compensation to depositors:
- cancellation of a banking license giving the right to carry out financial activities;
- introduction by the Bank of Russia of restrictions on certain financial transactions.
All decisions regarding the inclusion and exclusion of the bank from the CER registry are made by the Agency.
Investor Rights
Investors of commercial banks have the rights fixed by the Law:
- receive insurance compensation on deposits;
- inform DIA about cases of non-fulfillment by the bank of its obligations regarding deposits;
- receive full information about the bankās participation in CERs.
The deposit insurance system regulates the procedure for making insurance payments in accordance with Section 12 of the Law. Information on the suspension of the bankās activities is published in the Bank of Russia Bulletin and on the DIA website. From the day the insured event occurs and until the end of the bankruptcy procedure, the creditor has the right to present his claims by writing a written application to either the interim administration or the liquidator. The payment itself is made within 3 days, but not earlier than 14 days from the moment of the insured event. At the request of the depositor, the compensation amount is issued in cash or transferred to the specified bank account.
Positive and negative moments of CERs
The problem of ensuring the safety of cash deposits in banks is one of the main ones for the positive development of the country's economy. It is no secret that distrust of the banking system encourages people not to invest their money, for fear of losing them forever. To eliminate this unpleasant factor, a federal law was adopted to provide guarantees to depositors.
The deposit insurance system is a significant step towards increasing confidence in the activities of banks. An important aspect of CERs is the definition of a bank deposit by the property of the depositor, not the bank.
For regulation of the system, control over the implementation of the principles and goals, a Deposit Insurance Agency was created, which, in turn, is based on the provisions of the Law. Moreover, in order to strengthen the fund, the Agency is given the right to independently conduct financial transactions.
Deposit insurance is an integral mechanism of a sustainable financial system. Moreover, the banks themselves are interested in their participation in CERs. Since the successful functioning of the bank is impossible without warning bankruptcy, as well as providing support to it in times of crisis at the expense of public funds.
Unfortunately, today it is impossible to consider the deposit insurance system in the Russian Federation as ideal. It requires further improvement. Experts say that additional regulatory documents should be adopted that would regulate:
- The adoption of judicial decisions allowing individual banks to service deposits, despite the decision of the supervisor to suspend the bank.
- Expanding the list of āinsuredā objects by including individual entrepreneurs, small legal enterprises, metal deposits, and so on.
- Gradual increase in the maximum possible compensation. With the growth of the country's economy and the living standards of citizens, naturally, the amount of deposits is also increasing. This state of affairs should entail an increase in government guarantees in respect of bank deposits, which will necessarily entail an increase in confidence of depositors.
- The procedure for determining the mandatory contributions of a participating bank. Today, a flat scale is used to determine the level of contributions. Moreover, all banks pay the same percentage of deposits. However, given the varying levels of bank risk, such a system is not fair.
- Increasing the role of the DIA to prevent cases of bank failure and provide them with the necessary support to overcome difficult financial situations.
Thus, the deposit insurance system requires an integrated approach in order to make the necessary changes and improvements. Moreover, it is imperative that this work is carried out jointly by all participants in the deposit insurance system.