6. Summary of findings and conclusion

Before Russian Banking acquired its contemporary structure it had to go through the fundamental process of a fundamental change. Its history began with an alteration of the Soviet banking pattern, in which every bank was embedded into the centrally-planned economy. During the Soviet times, no single bank could operate autonomously, except the Gosbank, which was the head financial institution with an absolute governing power. The Gosbank was a form of the Central Bank of the USSR, which ruled the banking sector by legal, operational and functional means, implying that it was a dominating institution over the all types of economic establishments. There was no concept of a commercial or private banking in the economy of the USSR and the actual functions of these banks were passed under the control of the Gosbank. Nevertheless, some banks were established with the purpose of serving to the Soviet Central Bank and, therefore, they were allowed to perform a separate set of functions. Other than Savings banks, only two banks could be distinguished by this criteria: the Vneshtorgbank (the bank of a foreign trade) and the Strojbank (the investments bank). The Savings banks could not be regarded as independent institutions, because they were created as tools for the transference of funds between economic sectors. Another distinguishing feature of the USSR economy was that the State was the only source of a short- and long-term credit provision. With regard to the purpose of any credit type, each was directed at the economic support of the USSR.

In 1991, the Russian banking system originated on the ruins of a former Soviet Union. The set of fast radical reforms had transformed the centrally-planned economy into a market- based establishment. Within this process the banking sector hadn’t been left aside the plan. After 1995, it became possible to draw a line of comparison between the system of Soviet and modern Russian banks. The most obvious change appeared to be the introduction of a two-tiered banking structure where the first level is represented by the Central Bank of Russia and the second level consists of credit institutions, non-bank credit institutions and the foreign banks’ offices. The second most important difference is that private and commercial banking began to emerge all across the country, as they received a diversity of banking tools that gave them nearly an autonomous existence. The commercial banks became very flexible and, within the devastating economy of 1990’s, they found their profitable position. The chaos generated by the newly mushroomed institutions had stimulated an enormous amount of problems within the banking environment that prevented it from a correct path. An example of this could be the increasing rates of inflation, corruption, poor asset management, black bookkeeping and other types of financial fraud. Interestingly enough, the banking sector barely experienced a crisis itself, whereas the whole country was absorbed by the diminishing growth rates.

The contemporary structure of the Russian banks is an example of a system which was originated during the “Transition period” with a large amount of adjustments made after the beginning of the 21^st century. On theory, the structure of the banking system stays as a two-tiered one, however the new set of the legal and financial policies have changed it. In comparison to the “Transition period”, the activities of the commercial and private banking are strictly controlled. The Central Bank of Russia remains the head financial institution in the country, yet it is not fully controlled by the government, as it has a status of a separate legal entity which is not liable for the government’s debt and obligations. The major tasks of the Central Bank are the implementation of monetary policy and the protection of the national currency. In line with the Bank of Russia’s major duties, there is a set of the other tasks which do not prevent commercial and private banking from providing their own services. Nowadays, it is possible to apply the international financial standards to assess the quality of the domestic bookkeeping and corporate governance. A great number of financial institutions that do not match this criteria are the subject to the license confiscation. Therefore, due to the application of the new financial requirements, the banking environment becomes more rigid and liable for investors.

However, it is always difficult to operate within a non-stable environment stimulated by the government shocks and geopolitical changes. The primary banking pattern in Russia is a Western type of the banking system, and yet it is unfortunately far behind it. There is a number of stumbling breaks which continuously prevent it from a further development. Some of the issues add up on a daily basis as a result of the world-wide political actions. The Russian market-based economy is highly sensitive to the world-wide financial and capital markets. This makes the protection of the domestic currency (as well as national production) exceptionally hard. It is rather fair to assume that the current economic situation within a country could not be fully estimated, as many financial experts see it from different perspectives. Yet, some figures speak for themselves and provide a partial outlook on the current state of Russia and its banking system. In 2014, the general economic tendency is considered to be a decrease of the domestic growth rates and the devaluation of the national currency. The political risk occurs to be evidently high, which results in a foreign capital outflow. In reality, the banking sector does adjust to the current situation, these changes lie on the surface: the banks increase the provision of short- and long-term credit, as foreign loans become very expensive. Many banks (namely 20 largest banks in Russia) keep on the project of improving their capital. It could provide them with a greater quality of services and amend their credit portfolios.

The future of the Russian banking is closely tied to the Russia’s domestic economic condition as well as its future foreign policies. It goes without saying that a market-based economy cannot stay unaffected by the world-wide economic events; therefore, the improvement of the political relations with the Western countries appears to be a proper strategy. In the meanwhile, the elaboration of the new relations with the Asian world and Southern America also contributes to the profitable alternative for the future economic and banking development.