Russia should tighten control over domestic banks to rein in their deposit rate policies amid the ongoing global financial market instability, Prime Minister Dmitry Medvedev said on Thursday.
“In general, we have lots of credit institutions. This may be a good thing, but in any case, the activities of credit organizations should be closely watched. This is especially important in conditions of global financial instability,” Medvedev told a government meeting, which discussed amendments to the Central Bank of Russia to give the regulator additional powers.
“The [amendments] extend the list of organizations where the Bank of Russia can appoint its authorized representatives. These possibilities will help the Bank of Russia maintain banking system stability and control the use of state support funds by banks,” Medvedev said.
Russia’s monetary regulator will get a permanent right to limit the deposit interest rates which banks offer to depositors to attract much-needed financial resources, Medvedev said.
Some Russian banks have been pursuing aggressive policies to lure deposits by offering unjustifiably high interest rates to depositors, as the availability of cheap funds on global capital markets for smaller Russian banks becomes more difficult.
“The Bank of Russia is granted the right on a permanent basis to limit the level of interest rates offered by credit institutions under deposit agreements. This requirement was introduced at the start of the crisis [in 2009] as part of the so-called anti-crisis package,” Medvedev said.
“This measure was in effect until December 31, 2010 and helped regulate the operations of banks that attracted depositors' money at unjustifiably high interest rates and reduce the amount of obligatory deposit insurance payouts upon the onset of insured events,” Medvedev said.
This measure had a positive effect on the Russian banking system, the premier said.
“That is why we have proposed to maintain it permanently.”
