On Dec. 4 and 5, a host of officials and bank executives including such luminaries as Minister of Economic Development and Trade German Gref and Finance Minister Alexei Kudrin will gather in London to discuss the state of Russia's banking sector and plans for a sweeping clean-out of its system.
Reforms of Russia's banks are imperative. Bloated, unwieldy and corruption-riddled, Russia's banks represent the acme of all that is wrong with the country's economy. The banking sector, where so-called "pocket banks" those set up for the exclusive or primary purpose of hiding income or laundering money represent the quintessence of the reason most Russians still shy away from banks.
The ridiculously large number of banks, the lack of workable regulation and the lack of transparency, not to mention the widespread criminal activities within the sector and shady links between banks and businesses, have served to cripple what is a central part of any functioning capitalist economy. This has inflicted untold damage upon the economy in Russia while benefiting tiny segments of the population, not to mention making the nation's wealth entirely dependent on a handful of oligarch-run mega-businesses.
Banks are necessary in any economy operating according to free-market principles because they are vital for receiving loans, a prerequisite for a healthy investment climate. They are particularly important for small- and medium-sized businesses, especially at the start-up stage, when many would-be entrepreneurs lack the financial wherewithal to get things going on their own.
And such smaller-scale businesses are in fact the backbone of capitalist economy. Big multinationals may make the front pages of popular periodicals and may enjoy global brand recognition, but they are not the prime engines of a well-functioning economy. Russia has big business in spades, but the level of economic activity by entities smaller than behemoths like LUKoil or Yukos is paltry.
This results in a general stifling of the economy at the most basic level and helps preserve the Russian pattern of extreme wealth and economic and therefore also political power in the hands of a very few at the cost of prosperity for the rest of the country and its citizens.
Bank reform has nearly become a buzzword, but little has been done. While the government and Duma have been passing much-needed legislation in other spheres the Labor Code, the Land Code, etc. it has simply performed lip service when it comes to reforming the banking system.
Part of the reason for this lack of action may lie in vested interests on the part of bankers or the owners of pocket banks that can only be called "bankers" on the condition that scare quotes are employed and their buddies elsewhere in business and government. There's good money in inefficiency and corruption as long as you're in the driver's seat, and a lot of people are not willing to move over and let another passenger take the wheel.
The problem might have been unsolvable a short while ago, when factionalism, obstructionism and opportunism were reigning supreme in Russia. Throughout the 1990s, corruption in government and business, the oligarchic hijacking of government and an intractable Duma invoking empty populist rhetoric made it impossible for reforms to take place. And those that did usually quickly revealed themselves as scams or veiled political maneuvering.
These things are all still there, of course, but the country and the government are now in a situation where the powers that be have the political ability and the resources, not to mention a popular mandate, to get the job done. They have done it in other areas, and one hopes they will soon flex their muscle for the benefit of Russia's banks. They certainly need some discipline.