Nabiullina assessed the threat of the global banking crisis coming to Russia
“We do not see the risk of a “domino effect” for Russian banks due to problems in Europe and the United States”
The press conference of Elvira Nabiullina, Chairman of the Bank of Russia following the decision taken for the fourth time in a row to keep the key rate at the level of 7.5%, seemed to have to explain in detail the reasons for such semi-annual stability. However, reality came as a surprise. It turned out that most of all the market was waiting for comments from the head of the Central Bank of the Russian Federation about whether the banking crisis flaring up in Western countries would affect Russia and our credit institutions.
The head of the Central Bank of the Russian Federation repeatedly returned to the topic of the banking crisis flaring up in Western countries in the course of answering questions. Recall that on March 11, Silicon Valley Bank (SVB), one of the top 16 US banks, was liquidated - a Silicon Valley lender, the bulk of whose portfolio was associated with investments in startups. Its bankruptcy was the largest since the 2008 crisis. The next day, March 12, the license of the New York Signature Bank was revoked by the local regulator due to systemic risks after the collapse of the SVB bank. In less than a week, the total capitalization losses of systemically important financial institutions are estimated at $52 billion. A sharp drop in shares is recorded on the stock exchange. The total capitalization of four systemically important US banks - JPMorgan, Bank of America, Wells Fargo, Citigroup - decreased by 60%.
Bad news comes from Europe as well. So, in Switzerland, in order to save the unprofitable and second largest in the country Credit Suisse, local authorities are considering the option of a forced merger of the bank with its competitor - UBS. The second possible scenario for a financial institution that has been leading its history since 1856 could be its fragmentation with the aim of further selling it in parts to different investors. This is despite the fact that earlier the National Bank of Switzerland sent about 50 billion Swiss francs ($53.7 billion) to rescue Credit Suisse, but these financial injections failed to revive it.
Not surprisingly, investors began to get nervous and talk about a possible repeat of the events of 2008, when the global financial crisis began due to the failure of a large bank. However, Russia this time is well protected from the problems of the world economy. As Nabiullina said, the current situation in the US and European banking system does not have a direct impact on the Russian financial system. Our economy can only experience the indirect effects of a recession. “In itself, this new factor adds uncertainty about the future trajectory of the global economy,” explained the head of the Bank of Russia. “In combination, this situation can increase the risks of a recession in the global economy.” For our country, such a global slowdown means a decrease in demand for export goods, which may exert additional pro-inflationary pressure.
However, according to Nabiullina, at the same time, the removal of anti-epidemic restrictions in China will have a positive effect on the global economy. “For the Russian economy, this may mean the intensification of mutual trade, the emergence of new opportunities for exports and imports,” she said. “An additional boost could be given to the tourism industry.” The regulator does not see the risk of a "domino effect" for Russian banks due to problems in Europe and the United States. Domestic lenders withstood a much larger interest rate risk in 2022 and held out, so there is nothing to worry about here. “On the one hand, our Russian system is much less connected to the world one,” Nabiullina continued. “Secondly, with regard to the stability of our banks, they are less exposed to the vulnerability that banks in the US and the European Union demonstrate.”
As for domestic policy, the regulator is closely monitoring the situation here: the key rate will be at the level of 7-9% in the near future. There is a possibility of increasing this indicator at the next meetings, but “this is not predetermined,” Nabiullina emphasized. At the same time, the Central Bank of the Russian Federation expects a gradual expansion of consumer activity. The head of the regulator noted that the growth of wages and incomes, as well as getting used to the new product range, which is “gradually recovering” are important factors for expanding consumer activity.
The good news for Russians can be considered the preservation of the limit of free transfers between their accounts of 1.4 million rubles. Recall that in December the State Duma adopted in the first reading a bill that provides for exemption from commissions for transfers of individuals between their accounts to different banks for this amount. The Bank of Russia supports this idea, despite the resistance of some of its wards. “Our position here has not changed,” Nabiullina said. “We understand that some banks are against it, but we consider it important that people have the right to freely transfer their savings, at least within the insured amount, from one bank to another.”
Touched during his speech, the head of the Bank of Russia and the digital ruble. Recall that on March 16, the State Duma adopted in the first reading a bill that creates the basis for its implementation and non-cash payments. If fully approved, the regulation will enter into force on April 1, 2023. Many banks fear that the digital ruble will become their "killer". The regulator does not share this concern. “Some of the banks' fears that they would have liquidity problems have been discussed in detail for several months,” Nabiullina said. “We do not see such risks, and therefore we will move as we expected according to the plan.” The launch of the digital ruble does not threaten the work of financial institutions in Russia, the head of the Central Bank emphasized.