Foreign banks in the Russian financial market
Legal regulation of the activities of foreign commercial banks. Features of the Russian financial market. The role and place of foreign banks in the credit and stock market. Services of foreign banks in the financial market on the example of Raiffeisen.
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Federal State-Funded Educational Institution of Higher Education
“FINANCIAL UNIVERSITY UNDER THE GOVERNMENT OF THE RUSSIAN FEDERATION”
International Financial Faculty
International finance Department
Graduate qualification thesis
on the topic: «Foreign banks in the Russian financial market»
Education course: 080100 Economics
Education profile: International finance
Prepared by IFF 4-2 student
PhD, Associate professor
Moscow - 2015
Chapter 1. The legal and economic framework for the activities of foreign commercial banks in Russia
1.1 The role and place of foreign commercial banks in the Russian banking system
1.2 Legal regulation of the activities of foreign commercial banks
1.3 Features of the Russian financial market
1.4 The role and place of foreign banks in the credit and stock market
Chapter 2. Operation and methods to reduce the risks associated with the activities of Raiffeisen in the financial market of the Russian Federation
2.1 Position of Raiffeisen in the market of the Russian Federation
2.2 Services of foreign banks in the financial market on the example of Raiffeisen
2.3 Risks related to activity in financail market
List of references
bank financial market
With the development of market relations and the financial market in the last 10-15 years, national economies are becoming more open to foreign companies and, in particular, for a Foreign banks are looking for new markets. Banks with foreign capital operate in the non-domestic market for different purposes: the search for new markets, hedging risks in their own market and to attract additional capital. Expansion of activity leads to an increase of related risks, such as liquidity and the possible increase in the outflow of funds. Therefore, the degree of involvement of banks with foreign capital must be accompanied by the development of legislation in this area ie the constant improvement of the monitoring system, taking into account that the Russian specifics are not always happen in practice.
The relative openness of the Russian banking market makes it attractive for foreign capital investors, but this simplicity seems misleading, as banks are forced to deal with increased risks.
Background research is due to the increased role of banks with foreign capital and their possible impact on the Russian economy as a whole. As the Russian consumer often assumes that the foreign bank is more reliable institution for investment funds, such a scenario is quite acceptable.
Objective: to analyze the activities and services of foreign banks and the consideration of approaches to managing the risks inherent to foreign banks operating in the domestic market.
In order to achieve the objectives of the study the following tasks:
1) To analyze the theoretical approaches and the classification of banks with foreign capital;
2) To study the regulations governing the activities of foreign commercial banks;
3) To analyze the current activity of banks with foreign capital, for example, "Raiffeisenbank";
4) To allocate and characterize the current bank services and their impact on the total loan portfolio of the bank;
5) Describe the current practice of risk management in a foreign bank.
The object of study: the activities of commercial banks in the foreign domestic banking market.
Subject of research: the operation and services of banks with foreign capital and management of the risks associated with conducting business.
The theoretical basis for the study is the textbooks and manuals on banking and banking operations of various Russian authors - Ya.M.Mirkina, O.I.Lavrushina, S.L.Ermakova, A.M.Tavasieva, A.I.Balabanova, E.F.Zhukova, L.P.Krolivetskoy, G.N.Beloglazovoy and many others.
The sources of relevant statistics are open access materials on the Bank of Russia, "Raiffeisenbank" Portal «banki.ru». Also, as the information base used analytical data rating agency "Expert RA" and «Standard & Poors».
In accordance with the objectives of the study the structure of the work consists of two chapters. The first chapter analyzes carried out theoretical approaches to the concept and classification of foreign banks; formulated the concept of the bank with foreign capital, the conditions and reasons for creating the financial structure in the domestic market; studied regulations governing the implementation of the activities of banks with foreign capital; A classification and characterization of the identities of the Russian banking market.
In the second chapter done analysis of the structure and activities of foreign commercial banks, revealed the basic services; shows the characteristics of the risks faced by banks with foreign capital and highlighted methods of dealing with them.
Chapter 1. The legal and economic framework for the activities of foreign commercial banks in Russia
1.1 The role and place of foreign commercial banks in the Russian banking system
Until the mid-1980s, the level of participation of foreign capital in the development of national banking systems were very limited. Despite the partial decrease of the ban on the movement of capital and an increase in foreign trade, many countries, both developing and industrialized, have continued to follow to the already traditional principle of protectionism.
The total number of restrictions on market access and national treatment, used in world trade in financial services in the mid-1990s - before the adoption of the agreements on the liberalization of financial services under the General Agreement on Trade in Services (GATS), exceeded 11 thousand. Of these, dominant part accounted for the banking services. Most countries impose legal restrictions on the activities of foreign banks in the territory.
Initially, the shift toward internationalization of financial intermediation affected states with mature market economies. Then, for the next 15 years financial markets in many developing countries and countries with economies in transition began to open to external participants. In the first place, this phenomenon manifested itself in the expansion of foreign banks, reflected in an increase in their share of the assets and capital of national banking systems. Especially pronounced this tendency was observed in the Eastern European countries in transition to a market economy, and in Latin America. To a lesser extent this process affected countries in Asia and Africa. Антипова. О. Н. Функционирование банковской системы. - М.: ИНФРА-М, 2008г. - 44 стр.
In many ways, the process of trade liberalization and the provision of financial services on an international scale were associated with the formation of a new global trade and financial architecture. Regulatory agencies, opening access to foreign capital in the national market of banking services, guided by several considerations. Firstly, it was a desire to create favorable conditions for the inflow of foreign investments. Secondly, a willing to make an increase in the level of competition and encourage efficiency of doing business. Thirdly, the entry of foreign banks means import of advanced technologies, which is followed by a general institutional strengthening of the financial sector. Fourth, foreign banks could be regarded as one of the channels of inflows to other sectors, and their presence would be considered as one of the factors of economic growth.
Motivation of foreign banks, coming into a new market, deserves special attention. The main essence for foreign banks to enter new markets is an opportunity to profit from operations in the local market. Integration between the economies of the countries of origin and the country - the object of investment is another point, which affects investors' decision. Finally, the presence of foreign banks is largely dependent on the existing restrictions on market entry and conduct of operations.
However, the main reason for presence of foreign banks in the world has become all the same opportunity to make a profit in the new market. The strategy of foreign banks in this case focused on the development prospects of the economy, GDP growth, inflation, capitalization of local companies. In general, as the GDP growth rate becomes more attractive, the greater will be the desire of foreign banks to exist in the local market. An additional factor in this case is a competitive environment in the local market. The interest of foreign banks will be higher than the less-developed and effective local banking system.
World experience has shown that a foreign market involves mainly large banks and this is due to several reasons.
Large international banks, holding significant market share in the country of origin, looks for an opportunity for a risk diversification through the expansion of its activities in different countries;
Multinationals companies are customers of large banks.
As a result, banks, wishing to offer a wide range of services, forced to expand the scope of its activities and provide services where their customers look for it;
Found a business in another country requires a very substantial capital investment, especially if there is a high legislative strap on market entry in this country, and "economies of scale" in this case becomes essential;
Last characteristic is that large banks yielding portfolio management operations also involve increasing the number of points of presence in foreign markets. Балабанова И. Т. Банки и банковское дело, СПб: Питер, 2009г.- 34 стр.
Attraction of foreign banks, of course, is a serious risk to local banks. Decline in yield on operations makes it difficult to increase capital base for domestic banks, which in growing markets is rather weak. This can have a destabilizing effect on certain national financial system. Therefore, increasing the participation of foreign capital must be accompanied by improvement of the system of prudential supervision, in order to prevent rapid decline in the efficiency of the local institutions, which can not compete with multinational banks. In addition, possibility to increase the capital base and the impact on the profitability could be associated with an additional risk factor that can have its impact on the quality of the loan portfolio. This is due to the fact that the first-class domestic borrowers willing to apply more to cheaper resources provided by foreign banks.
However, upon the occurrence of tough economic time, the presence of foreign banks may have a stabilizing or destabilizing effect. On the one hand, foreign banks, relied heavily on foreign resources, are more resistant to internal shocks. On the other hand, in the case of a threat of banking crisis there may be an option when investors consider foreign banks as a safe haven and begin a massive withdrawal of funds from local banks, making the position of national organizations even worse.
As for the impact of foreign banks on other sectors of the economy, there can be mentioned largely positive moments. Firstly, economic agents have access to a quality banking products. Secondly, increase in competition in the financial services sector means greater choice for borrowers and banks' customers, reducing the cost of cash management services. All this should have a positive impact on corporate and economic growth.
Over the last 10-15 years under the influence of liberalization of capital movements and the globalization of financial markets, the situation has radically changed. Nowadays, most of the countries don't set any barriers for entering the national system. However, the level of participation of credit institutions with foreign participation vary significantly depending on the configuration of the legislative, institutional and economic conditions in a given country. In this sense, the experience of each country's procedures for the approval of foreign banks and the degree of influence on the restructuring and modernization of the system of financial intermediation can not be same.
Russia is no exception. The feature of our country is that in the public mind was confirmed false impression that the Russian authorities prevent the inflow of foreign capital into the banking sector. In fact, the conditions and procedure for access of non-residents in the domestic banking system in many respects softer than in most other countries. In essence, Russia has acted and continues to act moderately liberal approach to the registration and licensing of credit institutions with foreign capital. Белоглазовой Г. Н., Кроливецкой Л. П.. Иностранный капитал в банках России - М.: Финансы и статистика, 2008г.- 74 стр.
Nowadays, there is only one unresolved fundamental issue, which concerns the inability to open branches of foreign banks in the Russian Federation, avoiding the creation of a subsidiary bank. The government and the Central Bank of the Russian Federation based on the fact that at the current stage of development of the banking sector establishment of branches of foreign banks, by passing institution subsidiary bank, should be considered premature. This concept comes through the idea that same level of competition should be provided for all credit organizations and to prevent the market of banking institutions with a negative business reputation. In all other points of the conditions of admission of non-residents in the Russian banking system fit into global licensing practices of banking activities and do not cause significant objections on the part of foreign investors.
As of October 1, 2009 on the territory of the Russian Federation acted more than 150 credit institutions with non-residents. In total in Russia at that date the number of credit institutions has reached more than 1300. Thus, foreign capital is present in the ownership structure of each tenth of the current bank. It is important to note that the majority of banks with foreign capital have been recognized by the Central Bank financially sustainable in the selection of banks in the deposit insurance system and have a license to take deposits from individuals.
Operating institutions with the participation of non-residents located in 30 regions of the Russian Federation, including 85 credit institutions (or 64.9% of the total) are located in Moscow.
Interests of banks with foreign participation are predominantly associated with Moscow. There are registered approximately 85 credit institutions, or 65% of the total. Concentration ratio of foreign capital also demonstrates the imbalance in the distribution of investments in the authorized capital of Moscow and other Russian regions. Thus, Moscow accounts for over 90% of the total foreign participation in the authorized capital of banks.
The major part of foreign investments in the Russian banking sector accounted for west European countries - 96.6%. The leaders in the size of investments are Germany, France, USA, Austria, the Netherlands and Turkey. The leading role of the German capital in the Russian banking system (25% of all foreign investments) reflects the status of Germany as a major economic partner of Russia.
The nature of the involvement of foreign capital in the Russian banking sector is quite diversified. First of all, the separation can be performed by size interests of non-residents in the authorized capital of the Bank:
In 40 credit institutions authorized capital formed at the expense of non-residents by 100%. Contributions of non-residents to the authorized capital of banks in this group make up 40.4 billion Rubles (nearly 1.5 billion. Dollars.). Or 87.6% of total foreign investment. 9 credit institutions have a share of non-residents in the authorized capital of more than 50% but less than 100%. In 13 banks foreign participation varies from 20 to 50%. In 69 credit institutions share of non-residents is negligible (less than 20% of the share capital).
Thus, 62 credit institutions with non-resident participation in the authorized capital from 20 to 100% (or 47.3% of the total number of credit institutions with foreign investment), in which non-residents can have a decisive or a noticeable impact on the decision making process, we have 44, 5 billion. Rubles, or 10.6% of the total authorized capital of the banking system and 96.5% of total foreign investment in the authorized capital of Russian credit organizations.
If we compare the current distribution of banks according to the size of their participation in the capital of non-residents with existing after the financial crisis of August 1998, we can see that the greatest changes affected the group of credit institutions, in which the proportion of non-residents is 20 to 50% . Since January 1999, the number of banks with foreign participation decreased by more than 2 times. Against this background, the number of banks with 100% contribution of non-residents in the managing capital from 18 to 40 (see. Fig. 3):
On the banks, under the effective control of non-residents (more than 50% of the share capital), now account for over 90% of all foreign investment in the banking sector. This includes subsidiaries of the 10 banks of the thirty largest banks in the world in terms of assets, in particular the leaders of the world banking business - Citicorp, Deutsche Bank, BNP Paribas, Societe Generale. Бочаров В. В. Иностранный капитал в России. СПб: Питер, 2008г.- 115 стр.
These two opposite tendencies suggest that the Russian foreign founders try not to involve local partners to create a subsidiary bank, but prefer to fully control it.
1.2 Legal regulation of the activities of foreign commercial banks
Regulation of relations in the banking sector, due to the special significance for the country's economy, falls under the jurisdiction of the Russian Federation Russian Federation. By law governing relations in this sphere should be subject to special requirements:
* strict legal compliance and enforcement measures of legal responsibility in case of unattended, or abuse. Fundamental, basic source of banking legislation is the Constitution of the Russian Federation. Камаева В. Д. Экономическая теория. Учебник. М.: Владос, 2008г. - 58стр.
Paragraph "g" Art. 71 of the Constitution of the Russian Federation is directly related to the conduct of the Russian Federation to establish the legal framework of the single market; financial, currency, credit, customs regulation, money issue, the principles of pricing policy; federal economic services, including federal banks. According p. 1, Art. 76 of the Constitution of the Russian Federation on matters under the jurisdiction of the Russian Federation federal constitutional laws and federal laws. Конституция РФ ст. 71 Конституция РФ ст. 76 ч. 1
In accordance with Part. 1, Art. 8 of the Constitution of the Russian Federation in the Russian Federation the integrity of economic space, free movement of goods, services and financial resources, support for competition and freedom of economic activity. Конституция РФ ст.8 ч.1
Constitutional norms derive their development, detailing the provisions of the relevant federal laws. With regard to the banking law occupy the central place of the Federal Law December 2, 1990 N 395-1 "On Banks and Banking Activity" (hereinafter - the Law on Banks and Banking) and the Federal Law of July 10, 2002 N 86-FZ "On the Central Bank of the Russian Federation (Bank of Russia)."
In accordance with Art. 2 of the Law on Banks and Banking elements of the Russian banking system are credit institutions, as well as branches and representative offices of foreign banks. In the dictionary of the Russian language, the term "system" is defined, in particular, as "something whole, represents the unity of natural and are located in the concatenation of parts." Given this interconnection underdevelopment of its individual elements prevents the achievement of a harmonious state of the whole system. Федеральный закон от 02.12.1990 N 395-1 (ред. от 20.04.2015) "О банках и банковской деятельности" (02 декабря 1990 г.) статья 2
As you know, over the past years, Russian officials have made repeated statements about the inadmissibility of the opening of branches of foreign banks in Russia, which is confirmed by the practice of the Bank of Russia.
However, the legislation contains the necessary set of rules for the creation and operation of branches of foreign banks in the Russian Federation.
Based on the content of art. 55 of the Civil Code of the Russian Federation (hereinafter - the Civil Code), a branch of a foreign bank is a separate division of a foreign credit institution located outside of its location and performing all its functions, or part thereof, including the function of representation. Гражданский кодекс РФ, ст. 55
From this definition it follows that the branch is not a legal entity and has no independent standing in contrast to creating its foreign credit institution. However, as a general rule branch of a foreign credit institution shall have a wide range of powers to carry out banking operations and transactions within the system of national banking legislation, where it is created.
According to Article 17 of the Federal Law "On Banks and Banking" from 2.12.1990 №395-1 (Ed. Of 30.12.2008) for the state registration of credit organizations with foreign investments and foreign bank branch and ability to receive a license to conduct banking operations in addition to the documents referred to in Article 14 of this Federal Law, additionally submit duly executed documents listed below.
Foreign entity is:
1) a decision on his participation in the creation of a credit institution in the territory of the Russian Federation or to open a branch of the bank;
2) a document confirming the registration of legal persons and balance sheets for the three previous years, confirmed by the auditor's report;
3) the written consent of the supervisory authority of the country of his whereabouts to participate in the creation of a credit institution in the territory of the Russian Federation or to open a branch of the bank in cases where such permission is required under the law of the country of his residence. Федеральный закон от 02.12.1990 N 395-1 (ред. от 20.04.2015) "О банках и банковской деятельности" (02 декабря 1990 г.) статья 17
Foreign person is a first-class confirmation (according to international practice) a foreign bank solvency of that person.
Article 14 of the Federal Law "On Banks and Banking» 2.12.1990 №395-1 (Ed. Of 30.12.2008) states that for the state registration of the credit institution and obtain a license to conduct banking operations, the Bank of Russia in the established procedure, the following Documents:
Application with a written confirmation of a state registration of a credit institution and a license to conduct banking operations; The statement shall contain information about the address (location) of the permanent executive body of the credit institution;
The memorandum of association (original or notarized copy) if its signing by federal law;
the statute (original or notarized copy);
business plan, approved by the meeting of the founders (participants) of the credit organization, minutes of the meeting of the founders (participants), containing a decision on approval of the charter of a credit institution, as well as candidates for appointment to the post of the head of the credit organization and the chief accountant of the credit organization. The procedure for preparing a business plan of the credit institution and its evaluation criteria established by normative acts of the Bank of Russia;
documents confirming payment of state duty for state registration of credit institutions and for the provision of a license to conduct banking operations when creating a credit institution;
copies of documents on state registration of the founders - legal entities, the auditor's report on the reliability of financial reporting and the tax authorities confirm execution founders - legal entities liabilities to the federal budget, budgets of subjects of the Russian Federation and local budgets for the last three years;
documents (according to the list established by regulations of the Bank of Russia), confirming the sources of funds introduced by the founders - physical persons in the authorized capital of the credit institution;
profiles of candidates for the post of the head of the credit organization, chief accountant and deputy chief accountant of the credit institution, as well as head and deputy head, chief accountant and deputy chief accountant of the branch of a credit institution. These profiles are filled with these candidates personally and must contain the information specified in the regulatory acts of the Bank of Russia, as well as information Федеральный закон от 02.12.1990 N 395-1 (ред. от 20.04.2015) "О банках и банковской деятельности" (02 декабря 1990 г.) статья 14:
the presence of these persons higher legal or economic education (with the submission of a copy of the diploma or an equivalent document) and the experience of managing a department or other division of the credit organization related to the implementation of banking operations, at least one year, and in the absence of special education - management experience so division of at least two years;
the presence (absence) of a criminal record.
In view of the above in the case of a branch of a foreign credit institution would have received the right to exercise on the territory of the Russian Federation, some or all of the following banking operations and transactions referred to in Art. 5 of the Law on Banks and Banking:
* Raising funds from individuals and legal entities to deposits (demand deposits and time deposits) and placement of funds on its own behalf and at his own expense;
* open and maintain bank accounts of individuals and legal entities;
* settlements on behalf of individuals and legal entities;
* collection of cash, bills, payment and settlement documents and cash services to natural and legal persons;
* purchase and sale of foreign currency in cash and cashless forms;
* attract deposits and placement of precious metals;
* issuance of bank guarantees;
* make money transfers on behalf of individuals without opening bank accounts (except for postal orders);
* issue of guarantees for third parties providing the fulfillment of obligations in cash;
* acquisition of the right to claim from a third party fulfillment of obligations in cash;
* trust funds and other property under contract with individuals and legal entities;
* operations with precious metals and precious stones in accordance with the legislation of the Russian Federation;
* lease of natural and legal persons of special facilities or are they safe for storing documents and valuables;
* leasing operations;
* consulting and information services. Федеральный закон от 02.12.1990 N 395-1 (ред. от 20.04.2015) "О банках и банковской деятельности" (02 декабря 1990 г.) статья 5
For the implementation of some of these banking operations and transactions require special licenses. In addition, attracting funds of individuals and legal entities to deposits is possible only in case if the requirements stipulated by the Federal Law of 23 December 2003 "On Insurance of Household Deposits in Banks of the Russian Federation." These requirements include the presence of a foreign credit institution license from the Bank of Russia and the formulation of foreign credit institutions registered in the deposit insurance system in accordance with Art. 28 of the Law on Deposit Insurance.
In addition to the general requirements for the establishment of credit institutions in the Law on Banks and Banking establishes additional regulatory requirements for the establishment and operation of branches of foreign banks. Therefore, domestic legal scholars rightly pointed out that state as a rule do not have the right to refuse a foreign bank in the creation of the Russian branch, citing his refusal as unreasonableness.
For example, the Bank of Russia stopped issue of licenses to carry out banking transactions with foreign investment banks, branches of foreign banks when the quota of foreign capital in the banking system of the Russian Federation. Should be mentioned that quota is calculated as the ratio of the total capital held by non-residents in the authorized capital of credit institutions registered in the Russian Federation. Consequently, one of the necessary conditions for the establishment of quotas is the presence of branches of foreign banks. However, the quota of foreign capital in the Russian banking system is not defined, and is also a result of the Bank's Russia policy on an unofficial ban on the establishment of branches of foreign banks in the Russian Federation.
Thus, the above statutory provisions do not prescribe nor prohibit the creation of the territory of the Russian Federation, branches of foreign banks. This leads to uncertainty in the legal regulation of credit institutions, by virtue of which is one of the shortcomings of the existing system of banking legislation.
1.3 Features of the Russian financial market
In any country, the financial market is a mechanism for allocation and reallocation of capital (long-term returns) between lenders and borrowers through intermediaries, including banks. The method by which it is possible to influence the distribution and redistribution of capital between the agents of the economy based on supply and demand, are financial instruments. Thus, the financial instruments have a variety of market product having a financial nature, that is, securities, bonds, foreign currency.
The financial market is divided into the money market and the capital market. The money market operations are carried out and to provide borrowing available funds of enterprises and population in the short term. On the capital market to borrow funds for long periods. Differences are determined purpose borrowings. The money market serves the sphere of circulation, capital works on it as a means of circulation and payment, which determines the types of financial instruments on the market. Capital market serves the process of expanded reproduction: the capital functions as a self-expanding value.
The process of accumulation of money capital preceded by a stage of its production. When money capital created and is still in production, it is a pure money-capital. His transfer to other areas of the economy means the acceptance of the form of loan capital. Loan market (as part of the capital market) is able to unite the disparate petty cash, which in itself can not act as money-capital. Combining them in large amounts allows the market to play a greater role in the process of concentration and centralization of production and capital.
The role of the loan market in the economy manifests itself in three main areas:
1) before leaving the loan capital to the private sector, government and the public, as well as foreign borrowers;
2) accumulation of free cash capital and cash savings of the population;
3) the accumulation and concentration of fictitious capital. Добрынин А. И., Журавлева Г. П. Общая экономическая теория. СПб: Питер, 2009г.- стр. 128
Under the fictitious capital accumulation understood and mobilization of money capital in a variety of securities (the second part of the capital market), which is in contrast to the real capital (in the form of money, equipment) is not a cost, but only the right to receive income. Securities - this monetary documents proving ownership or loan document holder in relation to the person that issued the document (the issuer) and speeding on liability. Independent movement of fictitious capital in the market leads to a sharp separation of the market value of securities on the balance sheet, which further exacerbates the gap between the real material values ??and their relative cost financed represented in securities.
Thus, the national financial market consists of three segments:
1) Money market (traded cash and other short-term means of payment - bills, checks and other.);
2) capital market in the form of short-term and long-term loans provided to borrowers by financial institutions;
3) securities market, which is divided into an OTC (primary) and exchange sector, as well as "street" sector.
The financial market is an organized or informal system of trading in financial instruments. In this market, the exchange of money, credit and capital mobilization. The main role is played by financial institutions, direct the flow of funds from the owners to the borrowers. The goods are the actual money and securities. The financial market is thus intended to establish direct contacts between buyers n sellers of financial resources.
Under certain conditions, and derivative financial instruments (DFI) are created by way of redistribution of capital. Price is determined by the value of DFI of the underlying asset, which can be viewed as a combination of property and cash belonging to the enterprise, firm, company, which invested owners. Consequently, the DFI is the subject of civil rights (Art. 128 of the Civil Code).
At the present stage of development of market relations in the Russian financial market has the following features:
* sharp differentiation degree of development of the regions;
* restriction on the range of instruments used;
* privileged position of commercial banks in the financial market as the main agents;
* lack of willingness on the economic potential of commercial banks themselves to work in an active financial market;
* narrowness of the financial market due to its two sectors - the market of foreign currency (US dollars) and equity securities (state short-term and long-term liabilities). Robert Gilpin Global political economy, 2001 p. 67
These features have predetermined treatment DFI trend in the markets and limited number of underlying assets. In one of the Basel Committee conducted a study on derivative financial instruments and their impact on the formulation and implementation of monetary policy, benchmarking of monetary growth, the fight against inflation, keeping the national currency, etc., it is concluded that the certain circumstances, derivative financial instruments may acquire the features and functions of money, turning into a quasi-money. Among the factors that create such circumstances, include virtually all of the features of the Russian financial market, and the narrowness of the domestic financial market - the determining factor.
As a dominant position in the financial market of the country is occupied by commercial banks, which carry out banking operations in addition to (Art. 5 of the Federal Law "On Banks and Banking Activity") transactions with derivative financial instruments, their activity is largely due to activation of the above-mentioned trends.
In turn, the DFI has a corresponding direct impact on the state of the national currency (ruble), causing and enforcing negative change rate of the ruble against other foreign currencies and, as a consequence, the deepening of the crisis on the Russian financial market . Unfortunately, none of the DFIs, activity on the forward market did not get a clear definition in the national legislation. This led to what is happening in the financial market processes to date are out of proper control and regulation.
Constitution of the Russian Federation (Sec. 2, Art. 75) determined that the security and stability of the ruble - the main function of the Central Bank of the Russian Federation, which he performs independently of other public authorities. In paragraph 1 of Art. 75 states "money printing is carried out exclusively by the Central Bank of the Russian Federation. Introduction and issue of other currencies in the Russian Federation is not allowed." Конституция РФ, ст. 75, п.2
This provision is confirmed and refined art. 3 of the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)." Among the main objectives of the Bank of Russia - the task of "protecting and ensuring stability of the ruble, including its purchasing power and exchange rate against foreign currencies, the development and strengthening of the banking system of the Russian Federation."
Given the current situation on the money market and the national stage of formation (undeveloped) national financial market, as well as the urgent need to regulate and control over the forward market, it is necessary to express concern that the provisions of the federal law "On the Central Bank of the Russian Federation (Bank of Russia) "and" On Banks and Banking Activity "does not allow the Bank of Russia to carry out these objectives in full.
Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)" (p. 5, Art. 4) prescribes the establishment of the Bank of Russia "to conduct banking operations, accounting and reporting for the banking system." Closed list of banking operations, for which the Bank of Russia set the rules given in the Federal Law "On Banks and Banking Activity" (v. 5). The list does not include transactions in the futures market (forward, options, futures, swaps and derivatives thereof). They also are not listed among the transactions, which according to the same article can be carried out, in addition to banking and credit institutions. However, in fairness it should be noted that credit institutions in accordance with the same Article shall have the right "to carry out other transactions in accordance with the legislation of the Russian Federation", ie "forward contracts" referred to the regulation of general civil law. Федеральный закон от 10 июля 2002 г. N 86-ФЗ "О Центральном банке Российской Федерации (Банке России)", ст.4, ч.5
Part II Art. 3 of the Civil Code of the Russian Federation refers to the civil law of the Civil Code and adopted in accordance with this federal laws governing civil relations, and other federal laws containing norms of civil law.
Thus, in accordance with the above federal laws, credit institutions, on the one hand, have the right to carry forward transactions as "other transactions", on the other hand, they carry them out in the absence of appropriate legislation.
A striking example of this is the financial instrument, the so-called forward checking (in the world "forward for differences"), which received widespread among market participants.
Economic essence, this financial instrument can be considered as futures with the forced closing position, but having recourse to informal markets. This movement from the organized futures markets unorganized and turning it into a forward settlement have corresponding consequences thereof. One of them, and perhaps most significant, is the loss of the guarantee system, bidding rules, code of conduct of participants that are binding for all parties involved of the transaction. In addition, participants in organized markets (exchanges) enter into an agreement with the organizers of trades (contract), who in accordance with the Civil Code generally recognized legal force.
In Sec. 2.4 Bank of Russia regulation number 41 "On establishing limits of open currency positions and monitoring of compliance with the authorized banks of the Russian Federation" dated 22 May 1996, under the settlement striker understood "conversion operation, which is a combination of two transactions: foreign exchange forward contract and obligation to conduct a counter transaction at the date of the forward contract at the current exchange rate .., settlement forwards in terms of forward transaction with a fixed maturity date and exercise price of creating an open currency position (OCP) at the conclusion of the foreign exchange forward contract. " In this case, "the obligation to conduct a counter transaction at the date of the forward contract when calculating the open currency position is not taken into account. The value of open foreign exchange position changes at a fixed rate of countertrade." Приказ Банка России от 22.05.1996 N 02-171 (ред. от 05.08.1999) "О введении в действие Инструкций "Об установлении лимитов открытой валютной позиции и контроле за их соблюдением уполномоченными банками Российской Федерации" и "О порядке отчетности по конверсионным операциям уполномоченных банков Российской Федерации, являющихся ведущими операторами межбанковского валютного рынка", сек. 2.4
It is important to note that the instruction number 41 provides for three basic activities of authorized banks (including for their dealers) points:
* ability to independently control the size of opened intraday currency positions, "on the basis of self-assessment of the acceptable level of currency risk" (p. 15);
* the requirement in the case of exceeding the limits ORP hold until the end of the trading day balancing transactions (p. 23);
* Compliance with the end of each trading day requirements on the total value of all long (short) open foreign exchange position (no more than 30% of the equity capital (p.10.1) and their values ??for individual currencies, including the Russian rubles (less than 15% of equity capital (Sec. 10.2).
If you violate the requirements of the Instruction number 41 the Bank of Russia has the right to apply to violators of the measures under Art. 75 of the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)."
In terms of the regulatory and supervisory authority that oversees the activities of credit institutions, including responsible for their currency risks, such an approach and the requirement to comply with AFP objectively justified. However, these requirements are dealt with by credit institutions, in particular the big banks, the burden is not conducive to their monopoly approval to market and reliable delivery possible profits in times of currency corridor makes it easy to predict in their favor difference between the forward and spot rates apply to the Russian Foreign currencies, relatively easy way to eliminate from the market smaller competitors. This pushes them to search for detours. To a large extent their task is made easier by the fact that in Russia there is no system of regulation, whether at the state or self-regulatory levels, the creation and use of new financial instruments.
Participants at your own risk or use already existing in the world of financial instruments, including derivatives, not finding the definition and description of any law (Civil Code), either in regulations or adapt them to the already established practice in Russia and the existing national the legal system. As a result of treatment with financial instruments mainly distorted their economic substance and purpose. They are often used as tools bypass the requirements of legislation and regulations.
A good example is the use of credit institutions calculated forward to evade instructions №41. The nature and sequence of operations carried out by the dealers with the calculated forwards on the futures markets are as follows.
Dealer concludes with sides a forward deal with a settlement date T + n. Delivery of the underlying asset (mainly foreign currency) is not provided, as side A made aware. On forwards parties arbitrarily set the price of the underlying asset at the date of execution of the conditional transaction T + n. In this case, the parties negotiated, but not properly secured to concluding offset cash transactions in the spot market on the date of execution of the conditional forward transaction T + n on the current in the organized market the current price of the underlying asset. When entering into a forward transaction the parties intend that the date of execution of the conditional forward transaction calculation will be carried out without actual delivery of basic contractual amounts, but only the difference between the forward price and wholesale, while the latter may be a deviation in the and in the opposite direction from the established parties forward price; dealership ticket (offer), confirmation and, accordingly, the agreement, this condition is fixed as follows: "INDEX TO BE NETTED AT MICEX ON VALUE DATE".
At the conclusion of the settlement striker dealer makes the operation in the transactions for the current trading day only puts his signature on the basis of: Accounting carry out this operation on the balance sheet, the estimated amount of the contract entered into forward calculation of open foreign currency position (in accordance with Instruction №41 Bank Russia). With an active presence in the market dealer and wish to conclude the largest possible number of forwards calculated on the basis of which it is possible, and this he expects to receive a significant profit, it inevitably goes beyond the established AFP. Therefore, market participants found quite original way out to bypass the requirements of the Instruction number 41 Инструкция Банка России от 04.06.2012 N 138-И (ред. от 06.11.2014) "О порядке представления резидентами и нерезидентами уполномоченным банкам документов и информации, ч.41:
* by mutual agreement with the dealer of a third party is homogeneous forward transaction for the amount of the estimated forward, while at the dealership ticket (offer) has repeatedly stated "not real deal" 2;
* Dealer third party confirms (accepts) the transaction, but it does not reflect in its registry and consequently in the balance sheet;
* dealer based on their ticket and received from a third party dealer confirm the deal makes the roster, puts his signature;
* in accordance with the completed and signed them to the registry transaction is recognized in the balance sheet, which leads to a strict "implementation" requirements of the Bank of Russia regarding available to credit institutions AFP.
Thus, we can conclude that the Russian financial market and the existence of a settlement instruction execution striker number 41 is supported by an operation called "false-wings", the implementation of which, in turn, is possible only if there is collusion between dealers.
At the date of execution of the conditional forward transaction T + n side of the clearing striker find out the situation with the price of the underlying asset at the spot market to calculate the difference between the forward and spot prices. The reality of the Russian financial market is that the parties have the opportunity to abandon earlier agreement concerning the conclusion of the transaction offset the spot in order to carry out a kind of netting (which, as a rule, parties do not have a separate relevant agreement).
Party for settlement signed striker whose rights and interests are infringed by the transaction, and which faces the need to fulfill its obligations to counterparties to the full amount of the contract, refers to the court (arbitration) for protection.
Courts, considering the conclusion of the transaction in accordance with applicable law, come to the conclusion that the transaction is not subject to judicial protection, because it is a bet (at the moment in Russia in any of the regulations there is no definition of "bet").
Massive failure by the parties obligations under the forward transactions and refusal to enter into spot transactions lead to the formation of a critical mass of systemic risk and that he had repeatedly confirmed events on the global and Russian financial markets, a crisis.
What is happening now in Russia can be characterized as Beringz-case on a national scale. The current financial market situation requires the permission of Russia. Steps towards this have largely taken by the market participants, not the regulators, since the issues raised mainly deal directly with the operational activities of credit institutions.
In this regard, we can recommend to participants in financial markets, including credit institutions, to take the following measures:
* establish personal (individual) limits on each dealer;
* introduce more stringent control over the activities of dealers in the financial markets (to delineate the scope of their activities and the underlying assets or instruments);
* organize a system of follow-up with appropriate cancer cords and terms of reconciliation;
* develop and establish internal mandatory limits on counterparty for each type of transactions, including futures and related cash transactions;
* establish an internal procedure for storing control tapes to enter into transactions for dealers Reiter and recordings of their conversations in the case of transactions over the phone;
* a more accurate work on the drafting of legal documents, including agreements to conduct settlement forwards in which to give them legal force in disputes in the courts fail to provide penalties for violations of any of the parties to the earlier achieved agreement on the second portion of the calculated forward Kidwell & Brimble E, Financial Markets, Institutions And Money, 2 edition, 2010, p. 149;
* The internal instructions and documents to apply concepts and terminology used in the Civil Code, in particular relating to the conclusion of contracts (Ch. 28);
* adopt internal instructions on the documents upon which to rosters, accounting for transactions in the balance sheet (form number of signatures), and the corresponding workflow. Mishkin, Economics of money, banking and financial markets. Tenth edition, 2012, p. 109
Wrongfully assume that the situation concerns exclusively the financial markets is their internal affair. Regulatory bodies, including the Bank of Russia, also should not remain on the sidelines. Based on the logic of articles previously mentioned federal laws. The Bank of Russia has no right to regulate and control over the activities of credit institutions in the forward market. At the same time n. 7, Art. 5 of the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)" instructs the Bank of Russia to supervise.
Under the supervision of credit institutions in the art. 55 of this law is "constantly monitors the compliance by credit institutions of banking legislation, regulations of the Bank of Russia, in particular set of required reserves." In this same article prohibits the Bank of Russia to intervene "in the operational activities of credit institutions, except as provided by federal law."
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