Deposit insurance system: system participants, bank register and development in Russia

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

On December 27, 2003, the Federal Law “On insurance of deposits of individuals in banks of the Russian Federation” (hereinafter referred to as the Law) came into force in the Russian Federation. About ten years of painstaking work, fierce discussions, and disputes nevertheless made it possible to develop a new financial mechanism for the Russian banking system - the deposit insurance system (DIS). The crisis in the world economy in the 30s of the last century became the basis for the emergence of DER. For the first time, this form of activity appeared in the US banking sector in 1933. The presence of a state system that ensures the reliability of deposits in banks of the EU countries is a prerequisite for the success of the financial sector of the state.

Against the background of world practice, the work of the banking financial system in the Russian Federation looked insufficiently reliable from the point of view of depositors. This state of affairs significantly reduced the flow 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 part of the depositorslost her savings, confidence in banks in Russia was undermined. This could not but have a negative impact on the inflow of free capital into the banking sector.

This prompted the development of a regulatory framework governing 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 such joint activities is an increase in the confidence of individuals in the banking sector.

CER Goals

By implementing the right financial policy, you can achieve the goals set by the system of compulsory deposit insurance:

• increase confidence in the work of banks, thereby motivating potential depositors;
• protect the rights of Russian bank depositors;
• attract citizens' savings to the banking sector.

At the same time, it is extremely important that none of the goals is a priority. Since as soon as there is a shift in achieving one of the goals, crisis manifestations begin to occur in the banking sector, which invariably entails an increase in risks for depositors. The basis for achieving all the goals set is the stable development of the banking financial system.

CER Principles

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

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

• Regularly transfer insurance premiums to the CER fund, ensuring the accumulative nature of the fund's filling. In addition to contributions, banks are subject to pen alties for late performance of their duties. Pen alty amounts are also a source of replenishment of the fund.
• Notify your customers about participation in CERs, the amount of insurance payments by informing them at stands in public places.
• Keep an up-to-date register of bank loan obligations.
• Fulfill other obligations stipulated by the Law.

The risks of depositors should be reduced as much as possible in cases where banks are unable to meet their obligations to customers.

CER activities must be transparent. This implies access for potential contributors to information about the functioning of CERs.

Some more principles of CER functioning

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

• only financially stable banks of the Russian Federation have the opportunity to become participants in the system;
• insurance benefits are restrictive;
• Maximum payout speed must be respected.

The principle of admitting financially strong banks ensures that only those financial institutions that meet high financial standing requirements can become DIS participants. Thus, in order to achieve this goal, the Central Bank of the Russian Federation conducts regular and thorough inspections of existing banks. During checkassesses the liquidity of the institution's assets, profitability, level of management and much more. This allows you to exclude "problem" banks and minimize the risks of non-repayment of finances.

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

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

Insurance payments on deposits in world practice are made within 30 days. There is an opinion that a longer repayment period may cause panic and reduce the credibility of CERs.

Members of the deposit insurance system

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

• Insured - banks in the deposit insurance system, entered in the register of the system. Each bank has the right to become a member of the DIS, provided that it has a license issued by the Central Bank of the Russian Federation to attract free funds from the population in order to open cash deposits. Obtain information about the bank's participation in the systemdeposit insurance in the Russian Federation is available on the DIA website, in the bank itself.
• The beneficiary is depositors, bank customers who are en titled to claim insurance payments.
• The insurer is the body responsible for controlling the work of the DIS, namely the Deposit Insurance Agency (DIA).
• The Bank of Russia is the body entrusted with controlling obligations.

In addition, the Government of the Russian Federation takes an active part in the operation of the system, in particular, it is entrusted with control over the functioning of the CER.

Deposit Insurance Agency

DIA plays a key role in providing a deposit insurance system. Part 2 of Article 15 of the Law defines the list of powers of the Agency:

• accounting and register of banking organizations;
• accumulation of insurance premiums, ensuring control and safety of the fund;
• accounting for depositors' appeals and fulfilling their legal requirements;
• appeal to the Bank of Russia in cases of violation by the bank of the Law and the requirement to apply measures of responsibility;
• investment of free funds of the fund;
• control of banks regarding the fulfillment of the requirements stipulated by the Law;
• determination of the mechanism for the calculation and payment of mandatory contributions by banks.

Contributions that are not SHS members

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;
• bearer deposits;
• deposits of individual entrepreneurs, lawyers, notaries who are open for the purpose of doing business;
• deposits transferred to the bank for trust management;
• money in electronic accounts;
• impersonal metal accounts.

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

Insured events

CER includes several cases that provide compensation to depositors:

• cancellation of a banking license giving the right to carry out financial activities;
• Introduction by the Bank of Russia of restrictions on certain financial transactions.

All decisions concerning the inclusion and exclusion of a bank from the register of CERs are made by the Agency.

Rights of contributors

Depositors of commercial banks have the rights enshrined in the Law:

• receive insurance compensation on deposits;
• inform the DIA about cases of non-fulfillment by the bank of its obligations regarding deposits;
• get 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 activities is published in the Bulletin of the Bank of Russia and on the DIA website. From the date of occurrence of the insured event and until the end of the bankruptcy procedure, the creditor has the right to present his claims,by applying in writing either to the provisional administration or to the liquidator. The payment itself is made within 3 days, but not earlier than 14 days from the moment of the insured event. At the request of the depositor, the compensation amount is issued in cash or transferred to the specified bank account.

Positive and negative points TER

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 is no secret that distrust in the banking system encourages the population not to invest their funds, 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 the CER is the definition of a bank deposit as the property of the depositor and not the bank.

To regulate the activities of the system, control over the implementation of principles and goals, 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 given the right to independently conduct financial transactions.

Deposit insurance is an integral part of a sustainable financial system. Moreover, the banks themselves are interested in their participation in DIS. Since the successful functioning of the bank is impossible without preventing bankruptcy, as well as providing support to it in times of crisis at the expense of public funds.

Unfortunately, today the system of deposit insurance in the Russian Federation cannot be considered ideal. It requires further improvement. Experts say that additional regulations should be adopted that would regulate:

• Adopting court decisions allowing individual banks to service deposits despite a supervisory decision to suspend a bank.
• Expanding the list of "insured" objects to include individual entrepreneurs, small legal enterprises, metal deposits and so on.
• Gradual increase in the maximum possible reimbursement. In the context of the growth of the country's economy, the living standards of citizens, naturally, the amount of deposits also increases. This state of affairs should also lead to an increase in state guarantees for bank deposits, which will certainly 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. All banks pay the same percentage of deposits. However, given the different risk levels of banks, this system is not fair.
• Increasing the role of the DIA to prevent bank failures and provide them with the necessary support to get out of difficult financial situations.

Thus, the deposit insurance system requires an integrated approach in order to make the necessary changesand improvements. Moreover, it is extremely important that this work be carried out jointly by all participants in the deposit insurance system.