“Since 1992, more than 2500 new commercial banks have been created for the first time.” This book has gained new importance with the sudden recognition by Russian authorities that the Russian banking sector, left unchecked, is running dangerously close to causing a breakdown in Russia’s relationship with many foreign governments. The book charts, too, some of the economic developments that led to the rapid increase in the number of banks. However, the book fails to make any mention of the extent to which the US dollar became a de facto domestic currency in much of Russia, especially in commerce.
This is a fascinating book – as a Master’s course in how to completely screw up an effective banking system, the Soviet’s example must take some beating. What is amazing is that in more than seventy years of hopelessly messed up bankocracy, the Russians are still lurching from one self-inflicted crisis to another.
It is perhaps a worrying trend that the success of one Russian bank, Mosbusinessbank, is the rapid growth of its credit card business: ”banks have tended to encounter difficulties - even bankruptcy - and have naturally shaken depositors’ and creditors’ faith in the banking system.” (p20). This is consistent with the evidence of foreign banks in Russia where they have noted indigenous banks’ tendency to grant credit without proper risk management assessment, and the fact that banks have been “obliged” to make loans to criminal elements, often with no hope of repayment.
But the book goes well beyond a lesson in economics history: it also sets out the different services provided in different regions of Russia and a treatise on the development of clearing. The description of clearing is, in fact, one of the delights of the book - “The use of money as the measure of value only is the theoretical basis to carry out clearing. Clearing becomes possible when outstanding payments accumulate in one place and there is an opportunity to offset counter claims without the use of real money... No real money need be involved.” (p220). The section goes on to explain how the state controlled the clearing system and integrated it into commercial transactions between enterprises. Although it does not expressly state it, this explains how the Soviet Government operated the money-go round that eventually contained insufficient money to keep businesses alive and so starved production facilities, and of course their workers, of the cash needed to survive. The position was worsened by the admission of (state run) commercial concerns into the clearing system as their lack of funds meant a failure to meet clearing obligations.
The book is well worth a read.