The Systemic Effects of Prudential Regulation Toughening: The Results of a Stress-test for Russian Banks
AbstractThe stability of Russian banking sector is threatened by three negative tendencies — overheating of the credit market, significant decrease of banks’ capital adequacy ratios, and growing problems associated with banks’ lending to affiliated non-financial corporations. The co-existence of these processes reflects the crisis of the model of private investments in Russian banking sector, which was observed during the last 20 years. This paper analyzes the measures of the Bank of Russia undertaken to maintain the stability of the banking sector using the methodology of credit risk stress-testing. Based on this methodology we conclude that the Bank of Russia’s actions can prevent the overheating of the credit market, but they can also lead to undesirable effects: further expansion of the government ownership in Russian banking sector and substitution of domestic credit supply by cross-border corporate borrowings. The later weakens the competitive positions of Russian banks. We propose a set of measures to harmonize the prudential regulation of banks. Our suggestions rely on design and further implementation of the programs aimed at developing new markets for financial services provided by Russian banks to their corporate and retail customers. The estimated effects of proposed policy measures are both the increase in profitability and capitalization of Russian banks and the decrease of banks’ demand for government support.
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Bibliographic InfoArticle provided by N.P. Redaktsiya zhurnala "Voprosy Economiki" in its journal Voprosy Economiki.
Volume (Year): 8 (2012)
Issue (Month): ()
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Web page: http://www.vopreco.ru/eng/year.html
banks; prudential regulation; Bank of Russia; stress-testing; capital adequacy; credit overheating; affiliated financial institutions.;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G29 - Financial Economics - - Financial Institutions and Services - - - Other
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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- Mikhail Mamonov, 2013. "Bad management, skimping, or both? The relationship between cost efficiency and loan quality in Russian banks," HSE Working papers WP BRP 19/FE/2013, National Research University Higher School of Economics.
- Mamonov, Mikhail, 2012. "The impact of market power of Russian banks on their credit risk tolerance: A panel study," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 28(4), pages 85-112.
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