Bank of the Russian Federation
(Bank of Russia) was founded on July 13, 1990, on the basis of the Russian
Republic Bank of the State Bank of the USSR. Accountable to the Supreme
Soviet of the RSFSR, it was originally called the State Bank of the RSFSR.
On December 2,
1990, the Supreme Soviet of the RSFSR passed the Law on the Central Bank of the
RSFSR (Bank of Russia), which declared the Bank of Russia a legal entity and
the main bank of the RSFSR, accountable to the Supreme Soviet of the RSFSR. The
law specified the functions of the bank in organising money circulation, monetary
regulation, foreign economic activity and regulation of the activities of
joint-stock and co-operative banks.
In June 1991, the
Statute of the Central Bank of the RSFSR (Bank of Russia), accountable to the
Supreme Soviet of the RSFSR, was approved.
In November 1991, when the Commonwealth of
Independent States was founded and Union structures dissolved, the Supreme
Soviet of the RSFSR declared the Central Bank of the RSFSR to be the only body
of state monetary and foreign exchange regulation in the RSFSR. The functions
of the State Bank of the USSR
in issuing money and setting the ruble exchange rate were transferred to it.
The Central Bank of the RSFSR was instructed to assume before January 1, 1992,
full control of the assets, technical facilities and other resources of the
State Bank of the USSR
and all its institutions, enterprises and organisations.
On December 20, 1991, the State Bank of
the USSR was disbanded and all its assets, liabilities and property in the
RSFSR were transferred to the Central Bank of the RSFSR (Bank of Russia), which
several months later was renamed the Central Bank of the Russian Federation
(Bank of Russia).
In 1991-1992 an extensive network of
commercial banks was created in the Russian Federation under Bank of
Russia guidance through commercialisation of the specialised banks’ branches.
The disbandment of the State Bank of the USSR was followed by changes in the
chart of accounts, the establishment of a network of Central Bank cash
settlement centres and their provision with computer technology. The Central
Bank began to buy and sell foreign exchange in the currency market it
established and to set and publish the official exchange rates of foreign
currencies against the ruble.
In December 1992, as a result of the
establishment of a single centralised federal treasury system, the Bank of
Russia was no longer required to provide cash services for the federal budget.
The Bank of Russia carries out its
functions, which were established by the Constitution of the Russian Federation (Article 75) and the Law "On
the Central Bank of the Russian
Federation (Bank of Russia)" (Article 22),
independently from the federal, regional and local government structures.
In 1992-1995, to maintain stability of the
banking system, the Bank of Russia set up a system of supervision and
inspection of commercial banks and a system of foreign exchange regulation and
foreign exchange control. As the agent of the Ministry of Finance, it organised
the government securities market, known as the GKO market, and began to
participate in its operations.
In 1995, the Bank of Russia stopped
extending loans to finance the federal budget deficit and centralised loans to
individual sectors of the economy.
To override the consequences of the 1998
financial crisis, the Bank of Russia took steps towards restructuring the banking
system in order to improve the performance of commercial banks and increase
their liquidity. Insolvent banks were removed from the banking services market,
using the procedures established by the applicable law. Of great importance for
the post-crisis recovery of the banking sector was the creation of the Agency
for Restructuring Credit Institutions (ARCO) and the Inter-Agency Co-ordinating
Committee for Banking Sector Development in Russia (ICC). Thanks to the
effective measures implemented by the Bank of Russia, ARCO and ICC, by the
middle of 2001 Russia’s
banking sector had on the whole overcome the aftermath of the crisis.
The Bank of Russia monetary policy was
designed to maintain financial stability and create conditions conducive to
sustainable economic growth. The Bank of Russia promptly reacted to any change
in the real demand for money and took steps to stimulate positive economic
dynamics, cut interest rates, damp down inflationary expectations and slow the
inflation rate. As a result, the ruble gained somewhat in real terms and
financial market stability increased.
Due to the balanced monetary and exchange
rate policies pursued by the Bank of Russia, the country’s international
reserves have grown and there have been no sharp fluctuations in the exchange
The efforts made by the Bank of Russia with regard to the
payment system were designed to increase its reliability and efficiency for
financial and economic stability. To make the Russian payment system more
transparent, the Bank of Russia introduced reports on payments by credit
institutions and its own regional branches, which took into account
international experience, methodology and practice of surveillance over payment
In 2003, the Bank of Russia launched a
project designed to improve banking supervision and prudential reporting by
introducing international financial reporting standards (IFRS).
The project provides for the
implementation of a set of measures, including measures to ensure credit
institutions’ credible accounting and reporting, raise requirements for the
content, amount and periodicity of information to be published, and introduce
accounting and reporting standards matching international good practice. In
addition, measures are to be taken to disclose information on the real owners
of credit institutions, exercise control over their financial position and
raise requirements for credit institutions’ executives and their business
There are some problems to which the Bank of Russia pays
special attention. One of them is that specific risks connected with the
dynamics of the prices of some financial assets and the price situation on the
real estate market have begun to play an increasingly important role recently.
The practice of lending to related parties led to high risk concentrations in
some banks, compelling the Bank of Russia to upgrade the methods of banking
regulation and supervision by making greater emphasis on substantive
Fictitious capitalisation of banks is another matter of
serious concern for the Bank of Russia. To prevent banks from using all sorts
of schemes designed to artificially overvalue or undervalue the required
ratios, the Bank of Russia in 2004 issued a number of regulations, including
the Regulation "On the Procedure for Creating Loan Loss Reserves by Credit
Institutions" and the Instruction "On Banks’ Required Ratios."
As the number of credit institutions extending mortgage loans
to the public increased, in 2003 the Bank of Russia issued the Ordinance "On
Conducting a One-off Survey of Mortgage Lending," which set the procedure for
compiling and presenting data on housing mortgage loans extended by credit
With the adoption of the Federal Law "On Mortgage
Securities," credit institutions which ensured the observance of the
requirements for the protection of investors’ interests received the lawful
opportunity to refinance their claims on mortgage loans by issuing mortgage
In pursuance of the Federal Law "On the Central Bank of the
Russian Federation (Bank of Russia)" and Federal Law "On Mortgage Securities,"
the Bank of Russia issued the Instruction "On the Required Ratios for Credit
Institutions Issuing Mortgage-Backed Bonds," which specified the calculation and
established the values of the required ratios and the values and methodology of
calculating additional required ratios for credit institutions issuing
In December 2003, the Federal Law "On Insurance of Personal
Bank Deposits in the Russian
Federation" was adopted. The law stipulated
the legal, financial and organisational framework for the mandatory personal
bank deposits insurance system, and also the powers, procedure for the
establishment and operation of an institution implementing mandatory deposit
insurance functions and set the procedure for paying deposit compensation.
At present, an overwhelming majority of
banks participate in the deposit insurance system. They account for almost 100%
of total personal deposits placed in Russian banks.
In April 2005, the Russian Government and Bank of Russia
adopted the Banking Sector Development Strategy for the Period up to 2008, a
document which set as the main objective of banking sector development in the
medium term (2005-2008) the enhancement of the banking sector’s stability and
The principal goals of banking sector development are as
- increasing the protection of interests of depositors and
other creditors of banks;
- enhancing the effectiveness of the banking sector’s
activity in accumulating household and enterprise sector funds and transforming
them into loans and investments;
- making Russian credit institutions more competitive;
- preventing the use of credit institutions in dishonest
commercial practices and illegal activities, especially the financing of terrorism
and money laundering;
- promoting the development of the competitive environment
and ensuring the transparency of credit institutions;
- building up investor, creditor and depositor confidence in
the banking sector.
The banking sector reform will help implement Russia’s
medium-term social and economic development programme (2005-2008), especially
its objective to end the raw materials bias of the Russian economy by rapidly
diversifying it and utilising its competitive advantages. At the next stage (2009-2015),
the Russian Government and Bank of Russia will attach priority to effectively
positioning the Russian banking sector on international financial markets.