Russia Hones Bank Oversight in Biggest Shakeup Since Crisis

Central Bank of Russia file photo

(Bloomberg – – Olga Tanas October 4, 2016)

Russia’s central bank sidelined the officials who headed its unprecedented cull of lenders, rearranging its leadership in the biggest shakeup since a currency crisis last year.

Dmitry Tulin, the first deputy governor in charge of monetary policy, will replace Alexei Simanovsky and take over banking regulation and supervision starting Oct. 17, according to a statement on Monday. Deputy Governor Mikhail Sukhov, who was also responsible for bank oversight, will leave, while Simanovsky will become an adviser to Governor Elvira Nabiullina, who’ll get direct control of monetary policy from Tulin.

“That’s a big surprise, nobody expected such shifts,” said Oleg Kouzmin, a former central bank adviser who’s now chief economist for Russia at Renaissance Capital in Moscow. “There’s a desire to have more efficient supervision.”

The changes mark the biggest leadership overhaul since Tulin returned to the central bank in January 2015 as authorities struggled to contain the country’s worst currency crisis since the government’s debt default in 1998. Tulin, who joined the Soviet central bank in 1978 and has also worked at the International Monetary Fund, has experience in lender supervision after serving as the Russian monetary authority’s deputy chairman in the mid-1990s and again in 2004-2006.

Stronger Oversight

“After three years of purges, it became necessary to look closer at the personalities” in charge, Anton Tabakh, associate professor at the Higher School of Economics in Moscow, said on Facebook.

In making the latest moves, the regulator cited the need to strengthen its oversight, saying Tulin will take charge of the drive to reshape Russia’s banking system. Nabiullina started the cleanup three years ago to clamp down on dubious transactions and improve lending practices.

“Such changes probably mean that the active phase of the banking sector cleanup is ending,” Kouzmin said.

Under Nabiullina’s stewardship, the Bank of Russia has already shut down more than a quarter of all lenders, targeting those it considered mismanaged or undercapitalized. After pouring 1.5 trillion rubles ($24 billion) since 2008 into rescues of failed lenders by outside investors, the central bank wants to expand its role by handling bailouts of failed firms on its own.

Botched Rescues

Several of the biggest state-financed rescues haven’t unfolded as planned. Bank FC Otkritie, Russia’s largest private lender, has requested additional support after getting 127 billion rubles to save National Bank Trust. B&N Bank, a top-five private lender, deconsolidated Rost Bank from its balance sheet in 2015 after receiving 35.9 billion rubles to rehabilitate it the previous year. State banks haven’t always done better, with VTB Group refinancing a loan from the Deposit Insurance Agency in 2014 that it had received to save Bank of Moscow three years earlier.

The central bank plans to create a department in charge of liquidations and bailouts of financial institutions, as well as a service specializing in risk analysis, Nabiullina said.

“It’s become obvious that it’s not enough to fine-tune and intensify work within the existing framework,” Nabiullina said in a separate statement. “A deep reorganization, a reset of the whole system is necessary.”

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