Branches of discord – Newspaper Kommersant No. 190 (7391) dated 10/13/2022

It would seem that the fundamentally resolved issue of admitting branches of foreign banks to the Russian market unexpectedly backfired. At a meeting of the working group in the State Duma on October 12, Deputy Chairman of the Central Bank Alexei Zabotkin said that the opening of branches of foreign banks in Russia in the absence of access to the information of the parent organization and the ability to influence it with regulatory measures “creates risks to financial stability.”

Under the conditions of all sorts of sanctions from unfriendly countries in the West and East, the opening of such branches was supposed to remove some of the restrictions. Thus, these organizations allow both citizens and companies to open accounts directly in a foreign bank. Consequently, individuals will be able to issue cards of both local and international payment systems, as well as transfer funds to foreign bank accounts. Companies will not be afraid of blocking correspondent accounts of Russian banks and restrictions on SWIFT transfers.

And this week, Anatoly Aksakov, head of the Duma’s financial committee, announced that a corresponding draft law would be submitted for consideration in the near future. In September, the head of the Central Bank, Elvira Nabiullina, said that there was interest in this form of work on the part of the regulator. Even earlier, the media reported that this idea was included in the list of initiatives for the development of the financial market, a joint presentation of the Central Bank and the Ministry of Finance was submitted to the government.

Of course, this contradicts the previous position of the mega-regulator, which for many years consistently opposed the emergence of branches, protecting Russian banks from global giants with huge resources. In addition, the scheme has its own risks. For a bank opening a branch in the Russian Federation, they consist in secondary sanctions. For the Russian banking market, competition will increase significantly, especially in terms of cross-border payments. In addition, branches do not have to maintain a separate balance sheet and report to the Central Bank.

In fact, the regulator is torn apart by conflicting feelings: on the one hand, it would be necessary to let foreign banks here under a simplified scheme so that they would like to come, on the other hand, it is necessary to make sure that at the same time keep a close eye on them.

Therefore, Mr. Zabotkin’s suggestion that it would be a good idea for the Bank of Russia to become a regulator for those banks that decide to open branches with us, looks very elegant. Either the banks themselves will refuse and de jure, having announced such an opportunity, the Central Bank will remain with its own, or branches will open not just friendly banks, but de facto supervised ones. For the latter to happen, it is even difficult to imagine what kind of financial injections or tax breaks these branches of the Russian authorities should provide.