A systemic crisis occurs when bad assets reach. Solving the problem of "toxic" assets of banks in the conditions of overcoming the crisis
Keywords
BANK / SYSTEMIC BANKING CRISIS / BANKING SECTOR/ BANK / SYSTEMIC BANKING CRISIS / BANKING SECTORannotation scientific article on economics and business, author of scientific work - Khlopunova M.V.
Thing. Banking sector is an important component of any economy, and crises in it can arise for general (systemic) or internal reasons. V economic literature there is no complete definition systemic banking crisis. As practice shows, representatives of leading Russian and foreign economic schools have been expressing diametrically opposed views regarding the fundamental causes and mechanisms for the development of banking crises for a long time. At the same time, more and more new factors are emerging, the emergence of which is often difficult to predict and which lead to banking crises. The subject of this work is the causes, patterns of development of banking crises, as well as the totality of financial and economic relations and general cause-and-effect relationships that form the conditions for their development. Goals. The purpose of the study is to identify the causes of banking crises. To achieve this goal, the following tasks were set: to explore theoretical approaches to the disclosure of the essence and classification of banking crises, as well as their features. Methodology. The study was carried out on the basis of a systematic approach using monographic and economic-statistical methods. Results. The article analyzed the points of view of various scientists regarding the causes of banking crises. The study of the features and causes of banking crises allows us to develop recommendations for increasing resilience to them. This is especially important because Russia is currently experiencing another banking crisis. Conclusions. In domestic and foreign literature, there are several approaches to the definition of a banking crisis. However, a strict, formal and generally applicable formulation of this phenomenon has not been developed. There are also many works devoted to identifying the causes of banking crises. There are three approaches to determining the causes of their occurrence: macroeconomic, microeconomic and institutional.
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Theoretical aspects of bank crises: Substance, classification, causes
Importance The banking sector is a crucial component of any economy, where crises may arise due to general (systemic) or internal causes. The economic literature fails to sufficiently and completely define a systemic banking crisis. The research focuses on causes, patterns of banking crises and their origination, and a combination of financial and economic relations and general cause-and-effect relations that induce them. Objectives This research aims to identify what causes banking crises. In this respect, I examine theoretical approaches to revealing the substance and classification of banking crises, and their specifics. Methods The research relies upon a systems approach and monographic, economic and statistical methods. Results I reviewed various stances of scholars concerning the origination of banking crises and their causes. I investigate the specifics and reasons for banking crises, thus making recommendations on how to increase the sector's resistance to them. It is especially important, since currently Russia is undergoing another banking crisis. Conclusions and Relevance National and foreign literature points out several approaches to the defining of banking crisis. However, there is no formal and generally accepted wording of this phenomenon. There are also many researches into causes of banking crises. It is possible to single out three approaches to determining what causes them, ie macroeconomic, microeconomic and institutional reasons.
The text of the scientific work on the topic "Theoretical aspects of banking crises: essence, classification, causes"
ISSN 2311-9438 (Online) ISSN 2073-8005 (Print)
THEORETICAL ASPECTS OF BANKING CRISES: ESSENCE, CLASSIFICATION, CAUSES
Maria Vyacheslavovna Khlopunova
Banking
Postgraduate Student, Department of Finance and Tax Policy, Faculty of Business,
Novosibirsk State Technical University, Novosibirsk, Russian Federation [email protected]
Article history:
Adopted on 04/11/2016 Adopted in revised form on 04/28/2016 Approved on 05/25/2016
JEL: B01, G15, G21, G24
Keywords: bank, systemic banking crisis, banking sector
annotation
Thing. The banking sector is an important component of any economy, and crises in it can arise for general (systemic) or internal reasons. In the economic literature, there is no sufficiently complete definition of a systemic banking crisis. As practice shows, representatives of leading Russian and foreign economic schools have been expressing diametrically opposed views regarding the fundamental causes and mechanisms for the development of banking crises for a long time. At the same time, more and more new factors are emerging, the emergence of which is often difficult to predict and which lead to banking crises. The subject of this work is the causes, patterns of development of banking crises, as well as the totality of financial and economic relations and general cause-and-effect relationships that form the conditions for their development.
Goals. The purpose of the study is to identify the causes of banking crises. To achieve this goal, the following tasks were set: to explore theoretical approaches to the disclosure of the essence and classification of banking crises, as well as their features.
Methodology. The study was carried out on the basis of a systematic approach using monographic and economic-statistical methods.
Results. The article analyzed the points of view of various scientists regarding the causes of banking crises. The study of the features and causes of banking crises allows us to develop recommendations for increasing resilience to them. This is especially important because Russia is currently experiencing another banking crisis.
Conclusions. In domestic and foreign literature, there are several approaches to the definition of a banking crisis. However, a strict, formal and generally applicable formulation of this phenomenon has not been developed. There are also many works devoted to identifying the causes of banking crises. There are three approaches to determining the causes of their occurrence: macroeconomic, microeconomic and institutional.
© Publishing house FINANCE and CREDIT, 2016
As the experience of different countries shows, banking crises reflect a complex process of adaptation of the banking sector to changing macroeconomic conditions. It is difficult to name a country that has not experienced, to one degree or another, crisis situations in the banking system. According to the approach of K. Reinhart and K. Rogoff, the earliest banking crisis occurred in France in 1802. Early banking crises in emerging markets occurred in India in 1863, several times in China during 1860-1870. and in Peru in 1873.
Countries are still facing banking crises, spending a significant amount of money to fight them. According to the International Monetary Fund, since 1970 there have been more than a hundred systemic banking crises in the world. Consistency
crisis means the insolvency of most of the banking system, when for some reason most banks cannot meet their obligations to their depositors.
In domestic and foreign literature, there are several approaches to the definition of a banking crisis. However, a strict formal and generally applicable definition of this phenomenon has not been developed. The essence of the banking crisis and the causes of its occurrence were considered in their works by such foreign and domestic scientists as A. Demirguk-Kunt, E. Detragia, G. Calvo, J. Kaminsky, K. Reinhart, J. Caprio, S. Lindgren,
V.Yu. Katasonov and others.
The concept of "banking crisis" is defined ambiguously depending on the direction of the study, the nature of the analyzed factors
crisis, etc. Banking crises are initially local and represent one of the components of the financial crisis. It should be noted that in the modern theory of banking crises, special attention is paid to the distinction between situations of violation of stability in the banking sector and a full-scale crisis of the system. A local crisis, in turn, affects either individual sectors of the banking system, or individual regions within the country.
According to the macroeconomic approach, a systemic banking crisis is understood as a rapidly emerging and significant deterioration in the quality of banking assets due to the impact of adverse macroeconomic, regulatory and institutional factors.
The microeconomic approach, on the contrary, explains the occurrence of banking crises by a set of causes associated with the activities of specific banks and branch networks.
According to the approach of A. Demirguk-Kunt and E. Detrajia, one can speak of a full-scale systemic banking crisis when at least one of the following conditions is met: the cost of operations to improve the situation in banks amounted to more than 2% of GDP; share of bad loans in total amount banking sector assets exceeds 10%; problems in the banking sector led to the nationalization of a significant proportion of banks; there was a mass panic of depositors, and, as a result, deposits were withdrawn from banks (as a result of "raids" of depositors);
emergency measures were used, such as freezing deposits, declaring long “bank holidays” (days when banks do not carry out operations); the mechanisms of the state
deposit guarantees.
The most complete definition of a systemic banking crisis can be formulated as follows. This is a crisis of the banking sector, arising from the local and based on the domino effect, in which the accumulation of " bad debts» in a number of banks and the cessation of their solvency leads to a banking panic, a mass withdrawal of deposits, a sharp reduction in lending by banks to each other, etc., when, against the backdrop of developing mistrust, a massive suspension of payments by banks begins, followed by a collapse payment system and financial markets.
J. Caprio and D. Klingebiel singled out three manifestations of crisis situations in the banking sector:
1) problems in one or more banks (obviously, such a situation does not have signs of a systemic crisis);
2) latent disruptions in the functioning of the banking system, which may exist for quite a long time (in the context of a weak system of regulation of the banking sector and supervision);
3) full-scale (systemic) banking crisis.
There is a classification according to which banking crises are distinguished by the degree of damage to the economy. Thus, in a crisis that operates at the microeconomic level, several banks may go bankrupt. However, this does not lead to a large-scale economic downturn. An example of such a crisis is the banking crisis in Sweden in 1990-1993. The liquidity crisis forced the Swedish Central Bank to invest heavily in the banking system. However, this crisis did not lead to destabilization of the country's economy.
The consequences of the banking crisis, acting at the macroeconomic level, are more devastating. A striking example is the experience of Chile (1981-1984), when the banking crisis caused a decline of 13% of GDP in 1982-1983, and most banks were nationalized.
Macroeconomic instability during the “Chilean-type” crisis did not lead to full-scale fiscal destabilization, which entails high inflation and the demonetization of the economy, which is typical of a full-scale banking crisis.
The most dangerous type of banking crisis is a hidden or latent crisis, when a significant part of the banks are insolvent, but continue to function.
One of the manifestations of the banking crisis is banking panic. The classical model of banking panic, which served as the basis for most economic and mathematical models of banking panics, was proposed by D. Diamond and F. Dubwig. This model was developed by F. Allen,
D. Gale. This phenomenon is also called "bank run". It refers to a situation where a large number of bank customers withdraw their deposits due to concerns about its solvency.
One of its dangers is that the panic can spread from one possibly really troubled bank to banks that are healthy. Since they are closely interconnected by a system of mutual obligations, the emergence of a crisis situation in one bank (especially a large one) leads to losses in others.
There are two traditional views regarding the causes of bank panics:
1. According to the first approach, the banking panic is a self-sustaining process. If depositors expect a banking crisis to occur, then the best course of action for them is to withdraw their funds from the bank. If the bank will serve customers in turn, i.e. pay off their obligations first to the depositors who were the first to demand their funds, then the desire of the depositors to be the first to appear in the bank is quite understandable. And the depositors who demanded their funds first will receive more than those who waited.
Thus, it is beneficial for depositors to withdraw their funds at the same time, thus provoking a banking crisis. In extreme cases, the bank's reserves may not be enough to pay off its obligations to depositors. On the other hand, if no one expects a crisis, then banks satisfy the needs of depositors for a return of funds at the expense of liquid assets, and there is no banking panic.
2. An alternative approach is to assume that banking panics are based on business cycles. Due to the economic downturn, a decrease in the value of a bank's assets increases the likelihood that banks will not be able to meet their obligations. If depositors expect the banking sector to face financial difficulties, they will try to withdraw their funds, thus hastening the onset of the crisis.
Banking crises can be divided into four chronological periods.
1. Gold standard era 1880-1913 First of all, the crisis of 1907 that occurred in the United States should be mentioned here. In terms of international scope and cruelty, it was probably the strongest of the entire period under review. At that time, the United States did not yet have a central bank, and therefore J.P. took over the fight against the crisis. Morgan, head of the J.P. Morgan Co. He lent large sums of his own funds to a group of banks as a highly concessional loan and persuaded other New York bankers to do the same to strengthen the banking system.
2. Interwar period 1919-1939 During the period under review, the Great Depression of the 1930s is the strongest economic recession. The stock market crash in October 1929 is considered the beginning of the Great Depression, a protracted global economic crisis that was finally overcome only after the Second World War. The US economy was particularly hard hit by the crisis. Following the stock exchange came the collapse of the banking system. Since many banks gave loans to investors to buy shares, they lost a lot of money. During the Great Depression of 1930-1933. the worst series of banking panics in US history. Trying to save their money, depositors began to hastily withdraw deposits. Naturally, this accelerated bankruptcy. Banks tried by any means to stop issuing deposits. During the crisis, more than a third of American banks went bankrupt.
3. Bretton Woods period 1945-1971 At this time, there is relative calm. Banking crises were almost non-existent with tight regulation of the banking system and control over capital flows. Since the early 1970s the process of liberalization spread to the financial sector and, above all, to banks, which for a long time belonged to the most regulated areas not only in developing countries, but also in many developed countries Oh. The collapse of the Bretton Woods system and the energy crisis of 1973 were the catalysts for a global recession that led to difficulties in the financial sector in many advanced economies.
4. The modern period since 1971 The years since the early 1970s can be called unprecedented in terms of volatility in prices for goods, currency, real estate and securities. In 1 9 8 0-early 1990s. a wave swept through the Scandinavian countries
banking crises after a surge in real estate and stock prices. Similar events in Thailand had a domino effect and led to a sharp drop in stock prices throughout the region. In the second half of the 1990s. US stock markets suffered the same fate; Dot-coms and other high-tech stocks rose the most.
Banking crises of the 1990s in time began to coincide with currency crises. So, in the period 1970-1980. out of 25 currency crises, only three were accompanied by crisis events in the banking sector. However, after 1985, every second currency crisis (28 out of 52) coincided with a crisis in the banking sector.
In 1999, G. Kaminsky and K. Reinhart, in their article "Double Crises: Causes of Banking Crises and Balance of Payments Crises," point to the connection between crises and financial liberalization. In 18 of the 26 cases they studied, banking crises occurred in countries where the financial sector had been liberalized in the previous five years. Only in a small group of countries (such as Canada) did financial sector liberalization proceed smoothly.
The Russian banking system has experienced five banking crises over the past twenty-five years: the systemic banking crisis of 1995, the crisis of 1998, the banking panic of 2004, and the financial and economic crisis of 2008-2009, which began in the United States and soon became global. scale.
To date, a large number of works have been written about the 2008 crisis. In an effort to get as much money from borrowers as possible, banks have developed and applied complex tools based on mortgage loans. At that time, such a financial instrument as securitization became widespread, when mortgage-related securities were collected in packages, then other packages of securities were formed from them, and these packages were sold to investors around the world. This helped turn illiquid auto loans, home mortgages, and credit card debt into liquid, transferable fixed-income securities.
Banking crises are initially local. They begin with a series of problems in individual banks. Lack of funds, conflict of interests of owners and
managers, gaps in legislative framework or institutional structure and other reasons can trigger a chain reaction (domino effect). Three approaches can be distinguished in determining the causes of banking crises: macroeconomic,
microeconomic and institutional.
So, for example, the emergence of crisis situations in banks may be the result of errors in the field of supervision. But, as a rule, this is not the only reason, because. first there must be some defect in the work of the banks, which escaped the due attention of the controllers. Inadequate infrastructure in the area accounting, rights, etc. nor is it the direct and sole cause of the banking crisis. However, accounting or auditing deficiencies may obscure or delay the discovery of non-liquidity and
insolvency.
The microeconomic causes of the banking crisis primarily include the poor quality of banking management. These may include an imperfect management structure that lacks clear principles of oversight and accountability, weak staffing or lack of experience as a result of high staff turnover. An employee incentive structure that leads to risky behavior can also lead to problems within the bank. There are many theories that fix the presence of information asymmetry in the lending and savings process as the main causes of banking crises.
All banks are exposed to different types of economic risks such as credit risk (defaults); currency risk (increase in uninsured bank liabilities in foreign currency); liquidity risk (mass withdrawals of deposits). Thus, any bank is exposed to the risk associated with changes in the value of its assets and (or) liabilities in the financial markets.
In accordance with these risks, within the framework of the microeconomic approach, the following causes of banking crises can be distinguished: the growth of short-term liabilities of banks in foreign currency (the concept of J. Frankel and E. Rose); increase in non-performing loans and insufficiency equity(V. Gonzalez-Hermosilo).
Thus, for example, in a study of the Bank for International Settlements for 45 countries, it was found that the 2008 crisis was less severe in countries with high capital adequacy standards for banks and a lower ratio of loans to deposits accumulated in the banking system.
When banks have a large amount of uninsured debt in foreign currency, a sudden devaluation occurs sharp drop banks' own capital, thereby increasing the vulnerability of internal
banking sector.
Among the factors indicating the emergence of a crisis situation in banks, one can single out a large share of non-performing loans and the poor quality of the loan portfolio, a decrease in the value of the bank's assets, an imbalance in the bank's assets and liabilities by maturity and currency, a drop in the value of collateral that secures an overdue loan, a sharp outflow funds of depositors and creditors and, as a result, a reduction in funding.
Researchers J. Caprio and D. Klingebiel associate the emergence of crises in the banking system with the complete or partial loss of their net worth as a result of a sharp increase in the volume of arrears. R. Levin, S. Lindgren and G. Kaminsky saw cyclical downturns in the economy, declining asset prices and worsening terms of trade as the main causes of banking crises.
Excessive credit expansion can also be the trigger for a banking crisis. In the works of such authors as P. Honohan, A. Demirguk-Kunt, earlier credit booms appear as one of the possible causes of banking crises.
Among the causes of crises in banks, one can also point out the problem of moral hazard. According to some scientists, introduced after the Great Depression of the 30s. the deposit insurance system does not reduce, but rather increases the likelihood of banking crises. This is due to the fact that the deposit insurance system reduces the likelihood of bank panics and at the same time encourages banks to take on increased risks. Since insured depositors are confident that they will not suffer losses in the event of a bank failure, they do not withdraw their deposits when it is suspected that the bank
too risky. As a result, banks whose deposits are insured enter into transactions with increased risk.
The cause of the moral hazard problem for large banks is the “too-big-to-fail” effect (“too big to fail”). This is due to the fact that financial institutions which, due to their size, can rely on the support of governments or central banks, pose a serious threat to the stability of banking systems.
Banking crises are most often associated with macroeconomic instability. The main ideas of the macroeconomic approach to the study of the causes of banking crises are presented in the works of S. Fisher. In his opinion, the growth of the total debt of the economy leads to a decrease in the number of deposits due to the withdrawal of funds placed on deposit accounts by enterprises. This subsequently predetermines the emergence of a liquidity crisis and massive bank failures.
The works of S. Lizondo and K. Reinhart reflect the so-called "contagion" theories, according to which the spread of banking crises is the result of close intercountry banking ties, the export orientation of the economy, low level gold and foreign exchange reserves and the general weakness of the financial system.
Banking crises often follow collapses in real estate, stocks and other asset prices (after what is commonly referred to as a "bubble"). The term "bubble" refers to the rise in asset prices in the "rush" phase of the cycle. For example, in the 1980s in Japan, there was a boom in real estate and stocks that led to a crash in the 1990s. In the second half of the 1990s. stock hype swept across America, and the subsequent depreciation of stocks was perceived
owners of large blocks of shares in Enron, MCI-WorldCom and "dot-coms" as a collapse.
The hype is always something different, but they also have some common features. Rising prices for goods, real estate or stocks are always accompanied by euphoria. During such periods, investors seek quick profits from rising asset prices rather than income based on their productive use.
Then asset prices reach their highest point, and they begin to decline. Investors,
who have acquired assets with borrowed funds, begin to sell them at a loss, because interest on loans exceeds the income from investments. Selling at a loss leads to a sharp decline in asset prices and possible subsequent market panic and a string of bankruptcies.
Banks that place their funds in equities and real estate, or lend against these assets, often come under severe pressure as their liabilities are fixed, and falling prices lower the value of their assets. Further complicating the problem of falling prices, banks in such conditions are forced to demand early repayment loans and sell off their assets. These "bubbles" can have a devastating effect on banks and other financial institutions.
Such crises differ in mechanisms, but, in fact, their nature is the same. Every time, banks give out wishful thinking. A crisis is preceded by a rapid rise in asset prices. Analysts are convincing themselves and investors that this time the rise in prices does not represent a bubble, but a fundamental change in the economy. However, after a certain period of time, it turns out that in fact the assets are worth much less.
R. Schiller in his work “Irrational optimism. How reckless behavior rules the markets” showed the connection between economic crises and human psychology. In his opinion, the boom in the market cannot end well. He showed how people many times fell into the same
Table 1
Types of banking crises Table 1
Types of banking crisis
the same trap, thinking that this time the rise is caused by the advent of the “new economic era”, the discovery of new technologies, which means that, unlike previous cycles, it will not lead to the blowing off of the “bubble”. He is not inclined to blame either greedy investors or national banks, which spur the boom with soft credit policies, for the succession of booms and busts. The real culprit behind bubbles is irrational social psychology.
In accordance with the approach of H.F. Minsk "bubbles" in the economy are inflated due to an increase in credit volumes. In the 17th-18th centuries, when the banking business was virtually non-existent, the speculative boom was initiated
trade finance. wide
the expansion of lending and the growth in the issuance of debt obligations are associated with the creation of banks. Besides credit expansion already existing banks, emerging banks are struggling to increase market share, which leads to a rapid increase in money and credit as they face resistance from previously established banks that do not want to lose their market share.
Whatever the causes of banking crises, their consequences affect not only the banking sector, they also extend to the real sector of the economy, impede socio-economic development, lead to significant losses, bankruptcy of enterprises and credit organizations, depreciation or loss of citizens' deposits. As a result, this leads to a decrease in the bank's image as a socio-economic institution.
Classification feature Type of banking crisis
Microeconomic orientation
According to the degree of damage to the economy Macroeconomic orientation
full blown
Debt (loan, financial)
By origin Organic (moral, corporate)
Structural (systemic)
Local
By scale Regional
Global
According to manifestation factors Latent crisis (or hidden)
Open form of crisis
08.02.2018
Events. The Central Bank adjusted the dictionary. New concepts have appeared in the program document of the Bank of Russia. Yesterday the policy document of the Bank of Russia was published, describing plans for the development and application of new technologies in the financial market in the coming years. The main ideas, concepts and projects have already been announced by the regulator in one way or another. At the same time, the Central Bank introduces and discloses new terms, in particular, RegTech, SupTech and “through identifier”. Experts note that these areas have been successfully developing in Europe for a long time.
08.02.2018
Events. The State Duma issued a pass to Russia for capital. It was decided to repeat the one-time business amnesty. The State Duma of Russia adopted on Wednesday in the first, and a few hours later in the second reading, a package of bills initiated by Vladimir Putin on the resumption of the capital amnesty. The new act of “forgiveness” was announced as the second stage of the 2016 campaign, which was then presented as a one-time campaign and was actually ignored by the business. Since the attractiveness of the Russian jurisdiction and trust in its law enforcement officers have not increased over the past two years, now the stake is placed on the thesis that capital must be returned to the country because it is worse for them abroad than in Russia.
07.02.2018
Events. Control and supervision are customized. Business and authorities compared approaches to reform. The results and prospects of the reform of control and supervisory activities were discussed yesterday by representatives of the business community and regulators as part of the Russian Business Week under the auspices of the RSPP. Despite a 30% decrease in the number of scheduled inspections, businesses complain about the administrative burden and call on the authorities to respond more quickly to entrepreneurs' proposals. The government, in turn, plans to revise the mandatory requirements, reform the Code of Administrative Offenses, digitalize and accept reports in the "one window" mode.
07.02.2018
Events. Issuers will add transparency. But investors are waiting for additions to the meetings of shareholders. The Moscow Exchange is preparing changes to the listing rules for issuers whose shares are on the highest quotation lists. In particular, companies will be required to create special sections on their websites for shareholders and investors, the maintenance of which will be controlled by the exchange. Large issuers already meet these requirements, but investors consider it important to fix these obligations in the document. In addition, in their opinion, the exchange should pay attention to the disclosure of information to shareholders' meetings, which is the most painful issue in the relationship between issuers and investors.
07.02.2018
Events. The Central Bank of Russia gets a grasp of advertising. The financial regulator has found a new field for supervision. The integrity of financial advertising will soon begin to be assessed not only by the Federal antimonopoly service, but also the Central Bank. Starting this year, as part of behavioral supervision, the Bank of Russia will identify advertisements of financial companies and banks that contain signs of violations and report this to the Federal Antimonopoly Service. If banks receive not only fines from the FAS, but also recommendations from the Central Bank, this may change the situation with advertising in the financial market, experts say, but the procedure for applying the Central Bank's supervisory measures in the new area has not yet been described.
06.02.2018
Events. Not by accent, but by passport. Foreign investments under the control of the Russians will be left without international protection in the spring. The bill of the government depriving investments controlled by the Russians foreign companies and persons with dual citizenship to protect the law on foreign investment, in particular, guarantees of freedom of withdrawal of profits, will be adopted by the State Duma of Russia in early March. The document does not recognize as foreign and investments through trusts and other trust institutions. Russian-controlled structures investing in strategic assets in the Russian Federation, the White House is still ready to consider foreign investors - but for them, as before, this only means the need to coordinate transactions with the Foreign Investment Commission.
06.02.2018
Events. Banks are not given to state structures. FAS Russia intends to limit the expansion of the public sector in the financial market. The Federal Antimonopoly Service has developed proposals to limit bank purchases government agencies. FAS plans to amend the law "On banks and banking”and is now working on them with the Central Bank (CB). An exception may be the reorganization of banks, ensuring the availability of banking services in areas that need it, as well as issues of the country's security. The head of the Central Bank, Elvira Nabiullina, has already supported this initiative.
06.02.2018
Events. Online audit was given a chance. IIDF is ready to support remote checks. Online auditing, hitherto a side branch of this business, which was carried out mainly by unscrupulous companies, has received support at the state level. The Internet Initiatives Development Fund invested 2.5 million rubles in AuditOnline, thus recognizing the prospects of this area. However, market participants are confident that there is no legitimate future for online audits - remote audits are contrary to international auditing standards.
05.02.2018
Events. It is recommended to refrain from legitimate transactions. The Central Bank of Russia considered "hidden trust management» unethical. The Bank of Russia warns professional participants against using some popular, but not entirely ethical practices in relation to clients in the stock market. The schemes described in the letter of the regulator lie in the legal plane, so the Central Bank limited itself to recommendations. But in fact, the regulator is testing the application of a motivated judgment, the right to use which has not yet been legally approved.
05.02.2018
Events. Absorption will be less entertaining. The Central Bank of Russia encourages banks to reduce lending to M&A transactions. The idea of the Central Bank to encourage banks to lend not to mergers and acquisitions of companies, but to the development of production takes on concrete features. The first step could be to instruct banks to form increased reserves for loans issued for M&A transactions. According to experts, this will reduce such lending, but in order for bank resources to go to the development of production, additional stimulus measures will be required.
Triggered by a sharp change in the cost of financial goods and services, usually associated with panic. This phenomenon began to occur a long time ago, since then scientists have been actively studying the causes of occurrence. The most real are the decline in production, the increase in speculative operations, the limitation of the solvency of borrowers, the depreciation of securities and assets.
In Russia, the term banking crisis appeared in 1979, which provoked an increase in lending rates, a massive withdrawal of deposits, a decrease in the number of loans, an increase in the bankruptcy of financial organizations.
Banking system in a crisis
The crisis is spreading to a small number of banks, characterized by the withdrawal of savings. The general crisis of the banking system is associated with the emergence of non-existent deposits from the bank's management, aimed at an imaginary increase in the stability of the bank. Difficulties with liquidity are of a short-term nature, as a result of which panic arises, and as a result, the withdrawal of funds occurs in large quantities, in all credit institutions. Thus, the scale of the crisis is constantly increasing.
In earlier periods, banks closed their branches to save deposits and reformed at that time. Today, four main ways out of the crisis have been identified:
- State support;
- Restructuring of the banking system;
- Acquisition and merger of organizations;
- Introduction of other types of services, products, staff reduction.
- Revocation of the license, this measure is applied in the case when the actions of banks can lead to a systemic crisis due to financial problems.
Banking crisis causes
The main reason for the occurrence is the economic state of the system itself, before the onset of the banking crisis. First of all, the ability to quickly sell assets, the provision of equity capital, the quality of the loan portfolio.
- Active stimulation of the reduction of credit rates, with a long rise, is a factor provoking the crisis. An active increase in rates leads to a deterioration in the state of the loan portfolio, an overestimation of loan collateral and an increase in risks.
- Inflation affects several indicators at the same time, through lower interest rates, reduced deposits and lack of incentive to save. At the time of the depreciation of funds, the bank's assets can grow rapidly, as well as the profits of banks, provided that the net percentage of income is at a high level.
Impact of the crisis on the banking system
The crisis has a negative impact on the banking system and the economic condition of the country, because it is the circulatory system of the state. Without it, it is impossible to carry out financial transactions and redistribute the financial resources of society. Crises can be classified:
- Unexpected, depending on macroeconomic indicators and not controlling the company's activities;
- Foreseeable, such crises are expected by experts and members of society;
- Stable or systematic, they are caused by the failure of the banking system. Credit institutions are unable to fulfill their obligations to borrowers, or assets have depreciated.
Crises in the banking sector
Over the past few decades, the banking industry has been subjected to many crises. So, in the 80s, small credit organizations in the UK almost completely ceased to exist. This was a consequence of the economic boom that happened after the tightening of the Bank of England monetary policy.
Norwegian banks were not ready to switch to state control financial markets, because they were dependent on the country's budgetary policy. In the late 1980s, under the influence of declining income and rising losses, equity capital was destroyed.
The crisis of Japan, in 1993, happened because of the country's own economic structure. Exports were directly dependent on companies in the foreign market, while real estate and land prices were constantly growing. Most members of society regarded this as a good investment, but in 1993 there was a boom in this market, and as a result, a huge recession followed.
Massive banking crisis
The historic crisis occurred in 2007-2008, it was caused by the US mortgage crisis, the bankruptcy of credit institutions, and the fall in stock prices. It became the impetus for the liquidity crisis of many world banks, they stopped issuing loans for the purchase of cars, which provoked a decrease in demand for the products of automobile concerns. After that, he transferred his actions to production, causing its decline, thus, all areas of the economy were affected.
The current situation in can be called its second wave, with the only difference being that the current situation is aggravated by the imposition of various sanctions. Geopolitical and financial risks have grown. The head of the IMF claims that the economic situation is gradually returning to normal, but this is not yet felt by a simple layman.
Banking crisis: how to recognize it?
A type of financial crisis, a complex phenomenon that has dozens of different definitions - a banking crisis. How to recognize it before manifestation is a difficult question. We can definitely say that internal and external mechanisms can shake the stability of the banking structure. An upset in the balance of the monetary system can occur due to spontaneous news released by competitors about the bankruptcy of the bank. Clients who reacted to the news will rush to take pictures, others decide to urgently take out loans, the repayment of which may be delayed if the information is true. Factors in the following behavior of customers may not be triggered, being caused by other phenomena, such as the global crisis.
The insolvency of the bank at a certain point in time to fulfill its obligations to customers can be resolved with the competent management of the institution's policy, which provides for loyal conditions for depositors and tightening measures for issuing loans.
World banking crises and methods to overcome them
In the 20th century, a number of developed countries such as the USA, Japan, Great Britain, Spain, Norway, Finland, Sweden experienced global banking crises. And the methods of overcoming them have accumulated a good base, showing the positive international experience in dealing with disasters. The set of measures includes:
- Establishment of a deposit insurance corporation to liquidate bankrupt banks and protect depositors.
- Revocation of licenses from banking structures, whose activities may provoke the emergence of prerequisites for a crisis.
- Recapitalization of assets for troubled banks while maintaining the agreements concluded by the bank.
- Merging with a structure that stands firmly on its feet. It is only permissible to merge a healthy bank with a weak one, but not two weak ones.
- Redemption of assets in a centralized or decentralized way.
To stabilize the work of the bank during the period of crisis upheavals, the maximum number of generally accepted and other measures are used in combination, which, in general interaction, can help to cope with the instability caused by crisis unrest.
Types of crises
Crises are classified according to areas and causes of occurrence and development. Types of crises by spheres of occurrence: debt, currency, banking, others. The crisis of the first type is due to the crisis of the balance of payments and the development of worsening factors causing changes in the stable exchange rate. The crisis of the second type is caused by the accumulation of state. debts and prolonged insolvency on accounts, provoking a currency crisis. The crisis of the third type is caused by an increase in the private debt of banks and companies and a fall in prices. The crisis of the fourth type is caused by the accumulation of debts from public policy and individuals, provokes an increase in inflation and distrust in the state's currency.
Thus, crisis phenomena are closely related to debt obligations, the reasons for their occurrence and accumulation, and require government intervention to stabilize the banking system.
Banking crises in the 20th century
Over the past 50 years, banking crises have affected the financial stability of more than 50 different countries. The most serious banking crises in the 20th century:
- In the USA in 1929-1933. and in the late 70s. Reason: depreciation of bonds and termination of dividend payments on them. Output: create federal funds deposit insurance.
- in the UK in the 1980s. Small banks, lending to rising property prices, suffered. The collapse came due to a fall in real estate prices by a third.
- in Sweden in the 1970s and 1980s. The crisis has led to an increase in debt from the population and companies. When record high real estate prices plummeted, rents fell, financial companies suffered losses.
- Finland in the 1990s due to the loss of foreign economic relations after the collapse of the USSR, many loans in foreign currency.
- In Norway in the 1980s due to a decrease in the competitiveness of banks, losses incurred due to unwillingness to deregulate financial markets.
- In Spain in 1978, small banks of a new generation, positioned on risky transactions and inexperienced traders, suffered.
- In Japan in 1993, due to dependence on exports, rising real estate prices. Investments in real estate turned into a crash and ruin after a sharp drop in prices.
New banking crisis
A new banking crisis is promised to Russia literally every year. But, despite the unfavorable conditions that have arisen and the global economic instability, the government of the Russian Federation resists, steadily following the course, taking special measures to prevent and eradicate possible influences on the stability of the work of all structures.
The banking crisis and its repercussions have already eliminated small unstable banks in Russia from the arena, while the leaders are working at a rapid pace, some are suffering small losses, but staying afloat. The government took a series of steps to clean up the banks, staging an audit that revealed financial institutions operating outside the law, conducting fictitious operations, ensuring the withdrawal of funds abroad. A number of banks have lost their licenses, some managers have been prosecuted.
Possibility of mass bank failure
The possibility of mass bankruptcy of banks is always there, especially in the current state of the world economic crisis. It can be argued that at the beginning of 2016 in Russia there was already one wave of mass bankruptcy, caused to a lesser extent by the unfavorable development of the business environment and to a greater extent by the unscrupulous fulfillment of obligations and regulations of the Russian Federation.
A number of banking structures received notices about the revocation of their license to operate. Claiming intentional purge is meaningless. The banks that have suffered the fate of closing have repeatedly received warnings for the misuse of their obligations to customers and the state. Fiction, fraud, the export of funds abroad are the real reasons for the closure, including by force, of a considerable list of Russian banks.
For example, when talking about the essence of banking crises, many economists still use the definition from the 1979 edition of the Soviet Encyclopedic Dictionary. And although the phrase “banking crisis” is replaced by the synonym “monetary crisis”, practitioners in economics consider exactly what they wrote in this dictionary thirty years ago to be true. It says that the banking crisis is “... periodically recurring violations of the balance of the monetary system, expressed in a massive withdrawal of deposits, a sharp reduction in commercial and bank loan, an increase in financial bankruptcies, the pursuit of cash and gold, a significant increase in the rate of interest.
The problem of defining a banking crisis includes the disclosure of its concept and the selection of criteria on the basis of which the situation in the banking sector can be called a "banking crisis". And in their absence, the analysis of banking crises proper is also impossible. However, modern economists are also not far from their Soviet colleagues in their definitions. In the handbook financial crises: theory, history, politics ”(Rudy K.V., 2003) of students of domestic and foreign economic faculties is also not given a clear definition. It says only in general terms that “a banking crisis means the insolvency of the banking system, which is understood as the inability of the bank to fulfill the terms of the contract concluded with depositors, due to the default by the borrowers of the bank, the contract with the bank, or as a result of the depreciation of bank assets.”
And you will find the same inaccuracies in almost all the explanations contained both in new textbooks on economics and in books already covered with a thick layer of dust. Economists and financiers justify this: it's just that banking crises are different, and each of them must be characterized separately.
Experts divide banking crises into types ...
Ten years ago, the International Bank of Settlements provided researchers with the processes of banking crises by what signs they could be identified. Four factors were prescribed in the MDB: 1) if the problem assets of banks are more than 2% country's GDP; 2) the amount of money needed to save the banking system, more than 2% of GDP; 3) in the banking sector, nationalization has become massive, bank deposits are frozen, and the government introduces the so-called "bank holidays"; 4) the central bank of the country guarantees payments to the population on all bank deposits, without materially providing its guarantees.
But specialists of the International Monetary Fund, after analyzing the banking crises of 1980 - early 1990s, are already classifying the situation differently. They believe that a banking crisis occurs if at least one of the following conditions is met: 1) the ratio of uncollectible assets to total assets of the banking system exceeded 10%; 2) costs government agencies to support troubled banks amounted to at least 2% of gross domestic product; 3) the nationalization of problem banks was carried out; 4) banks have taken emergency measures, such as freezing deposits, suspension of work; 5) the state took over or created a number of bodies to guarantee the return of lost deposits.
And all of the above only once again confirms the thesis: there is no unity in the opinions of specialists when it comes to banking crises. Some also believe that one cannot just limit oneself to the criteria named by IMF or MDB analysts. After all, economists and financiers, for example, are still arguing: is the bankruptcy of several of the largest banks in the country a banking crisis or not? Some argue yes, others say no. And still others again cite criteria composed by the IMF and the MDB.
And, apparently, in order to at least somehow structure the opinions of experts on the account of the emergence and development of banking crises, it was decided to divide banking crises into several types. So, first type corresponds to a crisis operating at the microeconomic level, regardless of the size of budget expenditures. Examples are the crises in the USA (1984-1991), Sweden (1990-1993), Finland (1991-1994) and France (1991-1998). In these cases, the failure of a limited number of banks did not spread to the entire financial system and did not trigger a large-scale macroeconomic downturn. In particular, the open liquidity crisis in Sweden forced the Central Bank to invest heavily in the banking system. However, the intervention of the Central Bank was soon followed by a clear stabilization strategy: failed commercial banks were nationalized and restructured, while investments of "improved" money were neutralized over the following months by issuing long-term debt. As a result, despite the huge financial resources mobilized to overcome the crisis, it did not have a destabilizing effect on either inflation or the public sector.
Second type banking crisis is associated with much more devastating consequences for the country that becomes its victim. This type of crisis mainly spreads at the macroeconomic level. Very often, in this case, the experience of Chile in 1981-1984 is recalled, where the banking crisis initially caused a decline of 13% of GDP (in 1982-1983). There, the vast majority of the banking sector was nationalized, and as a result, the state's expenses for its restructuring have not yet been fully compensated. Also, the relatively recent monetary and financial crisis in Southeast Asia has many similarities with the earlier Chilean experience. At least at the state level. The impact of the crisis on economic activity, incomes and unemployment has been very visible in countries such as Thailand, South Korea and Indonesia. Restructuring costs in such countries can reach 15-20% of GDP.
The lesson of the Chilean crisis is also indicative in that the policy of restructuring the financial sector and mitigating the destructive effects of credit restrictions significantly affects the development of any country. In contrast to the "Swedish type" crisis, the Asian crisis has an impact on the potential economic growth, financial and industrial structure, the relationship of Southeast Asian countries with the outside world, the distribution of wealth and income.
The Chileans were lucky then that their macroeconomic shocks during the deployment of the "Chilean type" crisis did not result in a full-scale fiscal destabilization leading to high inflation and, in general, to the demonetization of the economy. After all, these criteria are already characteristic of banking crises. third type that have the most devastating consequences. In this case, the system of the old type perishes in the country, and the authorities urgently have to come up with radical measures to stabilize the entire economy.
…and in forms
However, skeptics argue that this division of banking crises into three types is completely fuzzy, unspecific and very streamlined. Therefore, some researchers prefer to single out a number of more specific forms of manifestation of banking crises.
This is, firstly, latent crisis, which is a situation where a significant part of banking institutions is insolvent, but continues to function (in Western literature, this situation is characterized as bank distress). The second form is overt form of banking crisis. In other words, bank failures, which even before the Great Depression were preceded by banking panics, expressed in mass withdrawals of deposits from banks (bank runs). By the way, in crises of the present time, "raids" of depositors on banks have become a rarity - mainly due to the deposit insurance system and various forms of explicit and implicit guarantees from the state. So now the transition of the crisis from a latent form to an open one is largely predetermined by the specifics of the country's institutional and legal framework and the measures taken by the Central Bank, as well as other regulatory bodies in relation to problem banks. As a result, in Western practice, the term "banking crisis" is often applied specifically to open forms of crisis.
The third form is systemic banking crisis, which means the failure of most of the banking system. Insolvency is understood as the inability of the bank to fulfill the terms of the contract concluded with depositors due to default by the borrowers of the bank, the contract with the bank, or as a result of depreciation of bank assets. In the open form of the crisis, insolvency is expressed in the cessation of banks issuing deposits at the request of depositors. The termination of payments on deposits by a large number of banks is the most obvious manifestation of an open systemic crisis.
The fourth form of the banking crisis, and, according to economists and financiers, the most harmless is partial, or local banking crisis, when the crisis covers either individual sectors of the banking system, or individual regions within the country. And the methods of dealing with these forms of banking crises should be comprehensive, that is, we are talking about the concept of reforming the banking system. However, given that crisis management is a microeconomic category, these methods for each particular bank should also be specific. Although some pragmatists generally state that it is poor management that is always the main reason for the insolvent state of each individual bank.
But the essence of the process does not depend on the opinion of experts.
The historical need for the emergence of banks was caused by the economic need for the accumulation of temporarily free funds and their provision in the form of credit resources. That is, the main and most important function of the banking system is the implementation of credit intermediation: raising funds and placing them in the form of loans. However, during the banking crisis, this function is not fully performed - there is an outflow of funds from the banking system and a reduction in lending. During a banking crisis, the banking system is unable to fulfill (in whole or in part) its direct purpose - the implementation of credit intermediation.
Another important function of the banking system is the implementation of settlements and payments in the economy. However, when there is an outflow of funds from the banking system, banks lose liquidity, resulting in solvency problems. The settlement function of banks is threatened: an insolvent bank cannot make payments.
Thus, we believe that the most accurate definition of a banking crisis is the inability of the banking system to perform its main functions of accumulating and mobilizing temporarily free funds, providing loans, making settlements and payments in the country's economy. With such an approach, the subject of a banking crisis is the banking system, and its characteristics are its failure to fulfill its main functions. Which is manifested in the loss of liquidity by banks, the growth of bankruptcies, the tension of bank credit and other complex and unpleasant things.
To classify the situation as a banking crisis, in our opinion, a quantitative criterion is needed. For example, the number of problem banks, which is at least 20% of operating banks. Thus, during the banking crisis in the Czech Republic in 1997, out of 60 operating banks, 13 (i.e. 21.67%) were among the problematic ones, including 3 banks in the liquidation stage, 4 banks with external management, 3 banks with bankruptcy management and 3 banks with revoked licenses. The number of problem banks during the crises in Chile, Argentina, Japan exceeded 25%, and in our neighboring country Russian Federation in 1998 there were 30% of problem banks. These facts only support the idea that a banking crisis can occur even in the absence of bank failures.
In addition to problems with the slowdown in the global economy, as well as political and financial chaos in Europe, putting pressure on all financial markets, the current crisis has revealed one serious problem for private and institutional investors: assets that act as a lifeline in a period of instability, For various reasons, they ceased to fulfill their "protective" functions.
Over the past decades, the world economy has repeatedly experienced varying degrees of shock. And each time, the investor had spare "retreat routes" - assets showing stable moderate (and sometimes rapid) growth, regardless of external factors.
These include national currencies, assets, liabilities of economically developed countries with a balanced budget and foreign trade policy. Thus, the Swiss franc and US government bonds have so far been the main "refuge" for obstinate investors.
Among the assets of the commodity group as a "safe haven" is the example of gold, the price of which has not experienced almost a single serious drop over the past 20 years (until the end of 2008).
Also, a popular asset for those who are afraid to take risks, but want to earn money, can be called real estate (to a greater extent, tourist).
Nevertheless, the crisis of 2008 "hinted", and the recession of 2011 confirmed that the value of any, even the most "safe" assets, is determined by a number of factors that are also subject to pressure. And under certain conditions, any asset can cease to bring not only large profits in the long run, but also a small stable income in the short and medium term.
Swiss frank
According to a number of authoritative Western media, Switzerland is preparing for the end of the "European experiment", which could lead to a sharp rise in the Swiss franc. To prevent such a scenario, rather radical measures can be used to directly limit the inflow of capital into the country, which the government and the leadership of the Central Bank have not done in the last 40 years.
In addition to the "small" troubled Greece, which may act as a detonator, the debt crisis may affect a number of large European states. Against this backdrop, the Swiss franc has traditionally been strengthening, acting as a refuge in times of economic and political instability.
Switzerland is geographically at the epicenter of the "storm", not actually being a member of the EU, but remaining its largest trading partner, highly dependent on the European market for its goods. And a strong franc cuts all the competitive advantages of Swiss goods in the bud.
Thomas Jordan, director of the Swiss Central Bank, said in an interview that the SNB will " fight to the last for the level of 1.20 francs for 1 euro ».
In 1970, Switzerland used extreme measures to curb the excessive demand for its currency. The country banned foreign investment in Swiss securities and real estate and had negative interest rates on bank deposits in foreign currency.
Now Swiss politicians, with the support of IMF representatives, are leaning towards foreign exchange interventions. However, restrictions for foreign investors are not removed from the list of possible measures to influence the exchange rate of the franc.
Gold
After hitting a high of $1,918 an ounce last fall, gold is now approaching the key support zone at $1,520 for the third time. Does such a drop look like “usual movements” in defensive assets? Very doubtful.
However, not even a 20% price cut is a turning point. A clearer demonstration of the fact that gold is not perceived by most investors as a "defensive asset" is the fact of the synchronous dynamics of the stock and commodity (gold, in particular) markets.
Previously, with any negative in the global economy, people withdrew funds from risky assets (stocks) and shifted them into protective assets (gold).
However, now gold has exhausted its potential for unbridled speculative growth and has become on a par with other risky assets. Since this asset has no intrinsic value (reproduction of capital), there is no reason to believe that investors will continue to shift their savings into bullion of the metal, the price of which has increased by 500% over the past 10 years solely due to speculation.
The property
Another "drowned" investment idea is real estate. close to anyone Russian investor An example is resort real estate in Spain. The value of the asset grew rapidly due to the growth of the tourism sector (growth in the cost of rental prices), as well as due to increased demand from foreign citizens (including Russians).
A fairly high “entry threshold” and difficulties in conducting transactions abroad were offset by an increase in prices.
However, since the peak of 2007, the value of real estate in the same Spain has already decreased by 30%. And, according to preliminary estimates of experts, this is not yet a chapel. Against the backdrop of severe problems with Spanish banks, which hold huge volumes of unsold real estate on their balance sheets, it can be assumed that this bubble will burst, and then, in order to pay off creditors, banks will have to sell their assets. And without lowering the price tag, it is unlikely that you will be able to sell at least something.
US government bonds
As the results of the latest auctions for the placement of long-term bonds by the US government show, investors prefer this particular asset to all others during the downturn in the global economy and credit problems in the Eurozone.
but reverse side medals is the record low yield of these bonds, which in fact will not cover inflation and is disastrous in the long run. If we take into account that, unlike, for example, Switzerland, the American economy is far from the concept of “balance” (no economy can cover the current level of spending, and there is also a growing multi-trillion-dollar debt) - even such a parameter as “reliability”, raises doubts.
Conclusion
If you look at things objectively, then there are no prerequisites for the world economy to soon return to pre-crisis tracks. As you can't see ready-made solutions for distressed Eurofinance. Therefore, 1-2 years "in a sideways trend" is a very real picture for financial markets.
For this period (and for all subsequent ones) it is time to look for "protective" assets. Perhaps among metals that have not yet been inflated, perhaps among new commodity groups (for example, diamonds) or foreign currencies of those countries that were not involved in the debt bacchanalia.
As paradoxical as it may sound, but now it's time to take risks for the sake of further security.