Deposit insurance system: participants of the system, the register of banks and development in Russia

On December 27, 2003, the Federal Law "On Insurance of Individual Deposits with Russian Banks" (hereinafter the Law) came into force in Russia. About ten years of painstaking work, bitter discussions, disputes still allowed the development of a new financial mechanism for the Russian banking system, the deposit insurance system (CER). The basis for the emergence of CERs was the crisis in the world economy in the 30s of the last century. For the first time such a form of activity appeared in the banking sector of the United States in 1933. The existence of a state system that ensures the reliability of deposits in banks of the EU countries is an indispensable condition for the success of the state's financial sector.

Against the backdrop of world practice, the work of the banking financial system in the Russian Federation looked not reliable enough, from the point of view of investors. This situation significantly reduced the inflow of free capital into the banking sector.

The development of a deposit insurance system is designed to have a stabilizing effect on the entire banking system. After the events of 1998, when a significant portion of investors lost their savings, confidence in banks in Russia was undermined. This could not but adversely affect the flow of free capital into the banking sector.

This prompted the development of a regulatory framework that regulates compulsory insurance of household deposits. For the Russian financial system, this is the most important program implemented by the banking community together with the state. The result of this joint activity is the growth of the confidence of individuals in the banking sector.

The objectives of CERs

By implementing the correct financial policy, it is possible to achieve the goals set by the mandatory deposit insurance system:

• Increase confidence in the work of banks, thereby motivate potential investors;
• Protect the rights of depositors of Russian banks;
• To attract savings of citizens in the banking sector.

It is extremely important that none of the goals is a priority. As soon as a shift in achievement of one of the goals is observed, in the banking sector, crisis manifestations begin to occur, which invariably entails an increase in risks for depositors. The base, which allows to achieve all the goals set, is the stable development of the banking financial system.

Principles of CERs

The basic principles on which the deposit insurance system is based in Russia are legally enshrined in Article 3 of the Law.

All Russian banks that have the right to open and maintain accounts from private individuals are required to be members of CERs. Banks participating in the deposit insurance system are required to:

• Regularly transfer insurance contributions to the CER fund, ensuring the cumulative nature of the fund's filling. In addition to fees, banks are penalized for late performance of the duties assigned to him. Penalties are also a source of fund replenishment.
• Notify their clients about participation in CERs, the amount of insurance payments by informing on stands in public places.
• Maintain an up-to-date register of credit obligations of the bank.
• To fulfill other obligations stipulated by the Law.

The risks of depositors should be minimized in the cases when banks are not able to fulfill their obligations to customers.

The activities of CERs should be transparent. This implies access of potential contributors to information on the functioning of CERs.

A few more principles for the operation of CERs

In addition to the points listed above, additional principles can be derived from the Law:

• The participants in the system have the opportunity to become exclusively financially stable banks of the Russian Federation;
• Insurance payments are restrictive;
• The maximum speed of insurance payments should be observed.

The principle of admission of financially sound banks ensures that only those financial organizations that meet high requirements for financial position can become members of CERs. So, to achieve this goal, the Central Bank of the Russian Federation conducts a regular and thorough check of existing banks. During the audit, the liquidity of the institution's assets, profitability, management level and much more are assessed. This allows eliminating "problem" banks and minimizing the risks of non-return of finance.

The deposit insurance system is a return mechanism with limited compensation. In accordance with Article 11 of the Law, in case of insured events (failure by the bank to fulfill its obligations), the depositor can count on a payment of 100% of all deposits registered with the bank, taking into account accrued interest.

Return on deposits of cash and accrued interest is carried out in rubles. Deposits in foreign currency are converted at the rate of the Bank of Russia at the time of the insured event. Provided that the customer has accounts in several banks, compensation is carried out separately for each financial institution. The existence of a loan agreement in a bank allows you to reduce the amount of compensation for the loan amount.

Insurance payments on deposits in world practice are carried out within 30 days. There is an opinion that a longer repayment period can cause panic and reduce confidence in CERs.

Participants of the deposit insurance system

Depending on the responsibilities assigned, the following CER participants are divided:

• The insured is the banks in the deposit insurance system entered in the system registry. Every bank has the right to become a member of the CER, subject to having a license issued by the Central Bank of the Russian Federation, to attract free funds of the population in order to open money deposits. You can get information on the bank's participation in the deposit insurance system in Russia on the website of the DIA, at the bank itself.
• The beneficiary is depositors, clients of the bank who have the right to claim insurance benefits.
• The insurer is the body responsible for monitoring the work of the CERs, namely the Deposit Insurance Agency (DIA).
• The body, which has control obligations, is the Bank of Russia.

In addition, the Government of the Russian Federation actively participates in the work of the system, in particular, it is responsible for monitoring the functioning of the CERs.

Deposit Insurance Agency

ASV plays a key role in providing the deposit insurance system. Part 2 of Article 15 of the Law determines the list of the Agency's powers:

• Registration and register of banking organizations;
• Accumulation of insurance premiums, ensuring control and safety of the fund;
• Consideration of depositors' appeals and fulfillment of their legal requirements;
• Appeal to the Bank of Russia in cases of violation of the Law by the bank and the requirement to apply liability measures;
• Investing of free funds of the fund;
• Control of banks regarding the fulfillment of requirements stipulated by the Law;
• Determination of the mechanism for the calculation and payment of mandatory contributions by banks.

Contributions that are not participants of IFOR

Article 5 of the Law establishes that the deposit insurance system for individuals covers most of them, with the exception of:

• Accounts opened in branches of Russian banks located abroad;
• Deposits to bearer;
• Deposits of IP, lawyers, notaries who are open for the purpose of carrying out entrepreneurial activities;
• Deposits transferred to the bank in trust management;
• Money on electronic accounts;
• Depersonalized metal accounts.

Deposit insurance is provided for by the Law and does not require the conclusion of a special agreement.

Insurance cases

The CER includes several cases involving the payment of compensation to depositors:

• The cancellation of a banking license entitling the carrying out of financial activities;
• The Bank of Russia imposed restrictions on the conduct of certain financial transactions.

All decisions concerning the inclusion and exclusion of a bank from the CER registry are taken by the Agency.

The rights of depositors

Depositors of commercial banks have the rights stipulated by the Law:

• Receive insurance compensation for deposits;
• Inform DIA about the cases of the bank's failure to fulfill its obligations with respect to deposits;
• Receive full information about the bank's participation in CERs.

The deposit insurance system regulates the procedure for making insurance payments in accordance with Article 12 of the Law. Information on the suspension of the bank's activity is published in the Bulletin of the Bank of Russia and on the website of the DIA. From the day of the occurrence of the insured event and until the end of the bankruptcy procedure, the creditor has the right to present their claims by applying with a written application to either the provisional administration or the liquidator. Direct payment itself is made for 3 days, but not earlier than 14 days from the date of the insured event. At the request of the depositor, the compensation amount is given in cash or transferred to the specified bank account.

Positive and negative CERs

The problem of ensuring the safety of cash deposits in banks is one of the main ones for the positive development of the country's economy. It's no secret that distrust of the banking system prompts the population not to invest their money, fearing to lose them forever. To eliminate this unpleasant factor, the Federal Law was adopted, designed to provide guarantees to depositors.

The deposit insurance system is a significant step towards increasing confidence in the activities of banks. An important aspect of CERs is the definition of a bank deposit by the property of the depositor, not the bank.

To regulate the operation of the system, control over the implementation of principles and objectives, the Deposit Insurance Agency was created, which in turn is based on the norms of the Law. Moreover, in order to strengthen the fund, the Agency is granted the right to conduct financial transactions on its own.

Deposit insurance is an integral mechanism of a sustainable financial system. Moreover, the banks themselves are interested in their participation in the CERs. Since the successful operation of the bank is impossible without the prevention of bankruptcy, as well as supporting it in times of crisis at the expense of public funds.

Unfortunately, today the deposit insurance system in the Russian Federation can not be considered ideal. It requires further improvement. Specialists say that additional regulatory documents should be adopted that would regulate:

• Adoption of judicial decisions allowing individual banks to service deposits, despite the decision of the supervisory authority to suspend the bank's activities.
• Expansion of the list of "insured" facilities by including in it individual entrepreneurs, small legal enterprises, metal deposits and so on.
• Gradual growth of the maximum possible reimbursement. In conditions of economic growth of the country, the living standards of citizens, naturally, the amount of deposits also increases. Such a state of things should entail an increase in state guarantees for bank deposits, which will necessarily increase the confidence of depositors.
• The procedure for determining the mandatory contributions of the participating bank. Today, a "flat scale" is used to determine the level of contributions. In this case, all banks pay the same percentage of deposits. However, given the different levels of bank risk, such a system is not fair.
• Increasing the role of DIA to prevent bank failures and provide them with the necessary support to exit from difficult financial situations.

Thus, the deposit insurance system requires an integrated approach to make the necessary changes and improvements. And it is extremely important that all participants of the deposit insurance system jointly conduct this work.