Banking in Russia is a highly regulated affair, with the government requiring all banks to meet a range of mandatory legislation requirements, and comply with a large number of instructions and regulations coming down from the (Central) Bank of Russia. Modern Russia, of course, inherited a banking system from the former Soviet Union—a fact that continues to affect the financial services sector, and was a primary contributor to a severe economic crisis in 1998. In March of 1991, the Central Bank of Russia did establish procedures for the issuance of securities by commercial banks, and Russian banks gained outlet to the stock market. Around that time, much of the State Bank’s currency exchange was auctioned off, with ten commercial banks and one financial organization taking part. After 15 years of reforms, however, Russia is now home to over 1,100 financial institutions, with a combined total of more than 3,000 regional branches.

The Central Bank of the Russian Federation (the Bank of Russia, headquartered in Moscow) is the country’s central bank, its functions being dictated by special Federal law to include the exclusive issuance of ruble banknotes and coins, and its primary responsibility being the protection of currency stability. The bank recently launched a project designed to improve supervision of the banking system and encourage prudential reporting through the introduction of international financial reporting standards (IFRS). Much of this project was designed to ensure credible accounting and reporting by financial institutions. The new regulations also raised requirements for the content, amount, and periodicity of the publication of financial information, and introduced accounting and reporting policies that now match international standards of good practice. As is the case with any central bank, the Bank of Russia is the main regulator of the banking industry, and is responsible for the issuance of all banking licenses, as well as the setting of rules for banking operations and accounting standards. The bank is also a “banker’s bank,” serving as a lender of last resort.

Overall, the Russian banking system has transformed from the centralized system of the Soviet era to the standard two-tier system (compromised of central and commercial banks) seen in most market-based economies. At the core of the country’s current commercial banking system are a set of large, viable banks that have attained significant financial credibility. Experts predict that these banks are highly likely to remain in operation under almost any foreseeable economic developments affecting the country as a whole (such as another economic dip or currency crisis). The three main banks (all formerly state-controlled) that form the foundation of today’s Russian banking industry are the Agroprombank (subsequently renamed Rossel'bank), the Promstroybank, and the Zhilsotsbank (reorganized into Mosbusinessbank). At the time of the 1991 restructuring, these banks were reorganized into joint-stock companies and became independent commercial operators.

All of this being said, the extent and quality of services offered by Russian banks are still highly rudimentary compared to what customers could find in any other European nation. Russian banks, for example, are unable to offer highly diverse or even efficient customer services due to the continuing lack of sophisticated infrastructure across numerous sectors key to financial services operations. Particularly lacking are the high-speed telecommunications and well-trained staff on which Western financial institutions are reliant. The largest and most established of Russian banks do offer debit cards and varying degrees of direct or automated deposit and withdrawal systems. Some banks also offer credit cards, but only to customers with impeccable and demonstrable credit ratings. As a result of this lack of modernity in the banking system, cash transactions still dominate day-to-day life, a situation many experts believe to have significantly slowed Russian commerce. The Bank of Russia itself, however, lists its primary goals in the coming years to be the following:

• increasing the protection of interests of depositors and other creditors of banks;
• enhancing the effectiveness of the banking sector’s activity in accumulating household and enterprise sector funds and transforming them into loans and investments;
• making Russian credit institutions more competitive;
• preventing the use of credit institutions in dishonest commercial practices and illegal activities, especially the financing of terrorism and money laundering;
• promoting the development of the competitive environment and ensuring the transparency of credit institutions; and
• building up investor, creditor and depositor confidence in the banking sector.

A small Russian securities market has developed alongside developments in the rest of the financial sector, and although insurance services have had an historically negligent presence, the small but growing number of insurance companies that exist today are gaining a foothold and slowly but surely working through the nation’s protracted period of financial reform. It is widely believed (and highly likely) that—as the role of the private sector in the national economy expands and the county develops even greater needs for sophisticated regulations and infrastructure—the Russian securities market and the role of various types of nonbank financial institutions will achieve concomitant growth.