Publication: Monitor Volume: 2 Issue: 70

There are two schools of thought about how the problem should be dealt with. One is the orthodox view, shared by reformist Russian economists and Western bankers, that Russia has too many weak banks and that it would do no harm if several were merged, consolidated, or simply closed. That would require transparency, cleaning up of the financial system, and proper publishing and auditing of accounts, all of which are presently lacking and needed. Another school of thought brings together such influential figures as First Deputy Prime Minister Soskovets, Interior Minister Kulikov, and Communist party leader Zyuganov, who adhere to the "flog ’em and and hang ’em" school that favors nationalizing a number of the banks on the grounds that tighter government control over the banking sector would enable more investment to be channelled into Russia. (This view is argued regardless of the fact that the record of state-directed investment is uniformly poor throughout the world).

Both schools of thought tend to buttress their arguments with vague references to Franklin Roosevelt’s reform of the U.S. banking system in 1933. The Russian Central Bank is encouraging weaker Russian banks to merge and has promised to ease their liquidity problems by reducing the ruble reserve requirement by 2 percent next month, but Central Bank Chairman Sergei Dubinin told the association congress this week that the government will not do more to bail out banks that find themselves in difficulties.