How and why does a bank liquidate?

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

In Russia, the procedure for liquidating a credit institution is regulated by the Federal Law “On Banks and Banking Activity”, the Federal Law “On the Central Bank of the Russian Federation”. It can last for several years. The bottom line is this: a temporary administration is being introduced into the bank. If it cannot independently stabilize the activities of the organization or find sponsors, then the Bank of Russia will liquidate the institution, having previously revoked its license.

Background

Bank liquidation and license revocation may occur for the following reasons:

• commencement of operations delayed more than a year from the date of approval;
• reorganization;
• invalid data on the basis of which the license was issued;
• information in reporting is not true;
• transactions without permission;
• failure to comply with the requirements of the Federal Law governing the activities of credit institutions;
• Unsatisfactory financial position of the bank.

In the case of a single violation of the Federal Law, an order is first sent to terminate certain types of activities by a specific organization. The same information is sent to the Banking Supervision Department. If the consequences of violations are not eliminated within the specified period, then more stringent measures of influence are applied to the institution - a temporary administration is introduced. Even during the period of its validity, the bank can continue to make transactions:

• to settle accounts receivable;
• receive the return of previously issued loans, advance payments, amounts to repay the Central Bank;
• receive funds from previously completed operations and deals;
• return erroneously credited money;
• conduct operations on executive documents, etc.

Commission

If the credit preemption goes bankrupt, then the liquidation of the bank is carried out through bankruptcy proceedings, the manager is appointed by the arbitration court. Organizations that can attract deposits from individuals and legal entities go through this process at the Agency for Social Insurance of Deposits (DIA). The Bank of Russia analyzes transactions for their compliance with standards and legal acts. If a decision is made to liquidate, then within 30 days after the license is revoked, a special commission is created to regulate this process. Reserves from the Bank of Russia are transferred to the correspondent account 10 days after its opening. They are used to cover debts to depositors.

The Commission carries out the following procedures:

• notifies depositors through the media that a commercial bank is being liquidated (the announcement also indicates the address of the commission, account details, the deadline for submitting claims);
• compiles the register of creditors;
• carries out property preservation operations;
• recovers DZ;
• realizes pledged property;
• assesses property;
• analyzes provided pen alties;
• puts property up for auction in case of insufficient funds from the bank;
• compiles reports, interim balance.

The liquidation of the bank is considered completed after fixing the data in the registration book and publication in the Bulletin of the BR. The institution may issue a license again if the bankruptcy case is suspended by repayment of obligations within 6 months from the date of revocation of the license. To obtain a new permit, you need to have assets for a minimum value of 180 million rubles.

Statistics

The liquidation of banks in 2014 showed that this sector is the most problematic in the country's economy. Even today, out of the fifty largest institutions, problems in the next 5 years may occur in 8%. During the period from 2011 to 2014, every fourth small bank, 70 regional and 30 medium ones lost their license. Several large organizations came under reorganization. Last year alone, 50 institutions were rehabilitated.

Over the past 10 years, the liquidation of banks and their restoration cost the DIA 1.18 trillionrub., of which a third was directed to the payment of deposits, and the rest - to reorganization. And this is not counting payments to depositors of institutions that did not fall into the CER. Today, the DIA is withdrawing another 190 institutions from the market.

Cost ROI

Liquidation of banks through the recovery of assets allows you to return a quarter of the money spent. Although 10 years ago this figure was 5%, today's 22% can hardly be called high. Statistics for 2014-2015 will not appear soon. But even according to the available data, it can be said that the numbers will not change much. The real size of assets of banks without a license is 63.3 billion rubles, liabilities - 100 billion more. That is, creditors can count on the return of no more than 38% of the requirements.

Rehabilitation is expensive

Approximately 37% of assets are sanitized by the state. This is a very high figure, especially considering that the procedure takes place by lending to institutions on very favorable terms: 10 years at 0.51% per annum. That is, even the return of funds on a loan can be attributed to the cost of sanitation. Therefore, the Central Bank does not always make decisions on the rehabilitation of the institution. It is often cheaper to liquidate a bank.

The situation in Ukraine

Neighbours' situation is no better. In 2014 alone, the NBU took away the license from 49 organizations. The worst result (10.1 billion loss) was shown by VAB Bank (Ukraine), whose liquidation has already begun. Two state institutions - "Ukrexim" and "Oshchadbank" - also received losses in the amount of 9.8 billion and 8.6billion hryvnia respectively. In addition to the difficult economic and political situation in the country, the devaluation of the national currency, the growth of loan defaults, and the outflow of deposits played a significant role in this issue.