Yuzhakov O.Yu. Bank management during the economic crisis: international experience
The emergence of crisis situations in the modern business world is an inevitable fact. As a result of the global financial crisis in 2008, the MICEX index, which includes the 30 most liquid Russian stocks, decreased in 4 months of 2008 by 75%; decreased gold and foreign exchange reserves by $ 150 billion, or 25%; for the first time in many years, the population's bank deposits decreased by 10%. At the moment, the Russian banking system is in recession. The Greek crisis caused the fall of the Cyprus banking system. Huge investments are coming to Russia through Cyprus, a group of companies of the Bank of Cyprus has been created in Russia, funds of some large Russian organizations have been deposited in accounts with Cypriot banks. Crisis processes in some states contribute to the deterioration of the economic condition of other regions. One of the possible scenarios for the further development of the domestic economy is a crisis. In this situation, it is necessary to know what the reasons are, and what consequences the crisis has for the bank. Currently, no universal method of crisis prevention has been developed. The study of this problem is necessary for the development of anti-crisis programs.
Banking crises have appeared a long time ago and recur periodically. In the 19th and early 20th centuries, the usual manifestation of crises, especially characteristic of the United States, was panic among depositors and raids on banks. More than 10 crises that engulfed the entire banking system took place during this period, and in 80% of cases there was a massive suspension of refunds of deposits by banks.
Scientists began to closely study the crises of the banking system since the late 19th century. K. Marx saw the reasons for banking crises in: lack of funds; the growth of speculative banking operations; economic crises (a decline in production, a decrease in the solvency of borrowers, depreciation of securities, the emergence of bad loans, assets). IA Trakhtenberg considered crises in the sphere of credit and the sphere of circulation. Soviet economists introduced the concept of "banking crisis" in 1979 and highlighted the following consequences of the crisis: massive withdrawal of deposits, reduction in lending, the growth of financial bankruptcies, and higher interest rates.
In order to get out of the banking crisis, it is necessary to take a set of measures to eliminate the causes and neutralize the main consequences of banking crises.
In the early periods of crises, government agencies temporarily closed banks to prevent massive withdrawals of customer funds from accounts and implemented banking sector reforms. This is how the crisis in the USA in 1933 was regulated for 10 days. In Germany in 1931, at first banks were closed for several days, then only part of the operations were carried out for 20 days.
In the modern period, in the foreign experience of combating banking crises, there are four directions of measures to overcome banking crises:
1) government support to banks;
2) institutional measures (restructuring of banking systems, reforming banking supervisors);
3) mergers and acquisitions of banks;
4) regulation of the crisis by the bank: transition to other types of services, products, increase in profitability, staff reduction, change in the organizational structure, etc.
5) revocation of the license. Applies to banks that can lead to a systemic banking crisis due to financial problems. The practice of a number of countries has found that artificially extending the life of fragile and poorly regulated credit institutions only exacerbates possible problems and financial losses in the future. Reorganization and financial recovery plans, which are considered for a long time, are sent for revision, as a result, they can lead to the fact that when a bank's license is revoked, it lacks not only assets, but also management.
Government support to banks includes
Providing central bank loans to selected banks to restore bank liquidity during times of critical funding shortages. The most painful manifestation of banking crises is liquidity interruptions, however, they are not of a long-term nature.
Capital recovery of banks, i.e. recapitalization by state bodies of the capital lost by banks. The central bank (or budget) buyout of bad assets is one of the most popular methods. Recapitalization can be performed multiple times. For example, in 1991-1994. In Hungary, it was carried out four times. In Japan, about $ 30 trillion was spent in order to increase banks and guarantee deposits. yen (about $ 250 billion) of public funds. Approximately the same amount was spent by the US government to fight the savings and loan institutions crisis. There are two methods of redemption by the state of distressed assets: centralized and decentralized. In a centralized way, the state creates a specialized corporation to buy and manage the asset problem. Most often, there is an exchange for debt obligations of a corporation (Mexico), government (Hungary). Purchases are made with a special relationship between banks and the state. The decentralized way is to set up an appropriate structure inside or outside a small number of financially distressed banks.
Institutional measures include the creation of a deposit insurance system. The system allows you to quickly liquidate bankrupt credit institutions and protect small deposits from losses of bankruptcies that have occurred.
Mergers and acquisitions are carried out in order to improve the financial position of a bank in an unstable state. Supervisors must prevent the emergence of a problem bank, it is necessary to create one sustainable bank.
Restoring confidence in banks, solving the problem of bad assets and efficient functioning of the lending process are the main tasks of the state during a banking crisis. The governments of different countries have solved these problems in a variety of ways. Consider the experience and models of consistent actions of states during the banking crisis (Tables 1, 2).
Best practices in overcoming banking crises include:
1) an instant assessment of possible future losses using negative development scenarios
2) stimulating banks to quickly get rid of bad assets and recapitalization
3) an increase in government guarantees and the introduction of debt restructuring programs for borrowers
The sooner the state begins to assist banks, the cheaper the bank support programs will be. Rollover bad assets lead to financial system paralysis and future losses. It is more efficient to quickly recognize bad debts and clear the balance of them.
Consider five types of crisis management by states
- Scandinavian countries
- Chile and Korea
- Mexico, Indonesia, Japan, Argentina
- UK and USA
- Greece and Cyprus
The plan for overcoming the crisis in Sweden and Norway consisted in the nationalization of the banks of the largest banks. This has proven to be effective. We managed to get out of the crisis quickly and at low cost. In Sweden, bad assets companies have been set up and guarantees for bank liabilities have been introduced. Sweden's programs are often remembered, especially highlighting the success of the creation of a "bad" bank and nationalization. However, it should be remembered that all the state aid went to save the two largest nationalized banks. In Norway, they did without creating a "bad" bank, reducing the cost of overcoming the crisis. The way out of the crisis of the Scandinavian countries was the most effective, thanks to a timely and realistic assessment of losses. Confidence in the banking system was quickly restored.
In the remaining countries, the problem of bad assets was more acute than the Scandinavian ones. However, Chile and Korea need to be considered separately. In Chile, banks were not nationalized, credit institutions remained solvent, and incentives were created to identify bad assets that were repurchased at par. This mechanism did not require debt valuation; the amount of securing the IOU on the balance sheet decreased, ensuring the bank's solvency; due to the obligation to repurchase the asset, there were incentives to effectively manage debt. The cost of overcoming the crisis in Chile was high due to debt buybacks and delays in debt assessment, sponsoring debt restructuring.
An asset management company was established in Korea. She bought bad assets well below book value. A private market for bad assets emerged. Recapitalization was carried out by the state. The assessment of losses was accepted more quickly than in Chile, and overcoming the crisis turned out to be faster and more effective.
The policy of overcoming the crisis in Mexico, Indonesia, Japan, Argentina turned out to be unsuccessful. Countries neglected the principles of quick assessment of possible losses and work on bad assets. Effective tools for getting rid of bad debts were not found or introduced too late. The banking sector remained unstable, with economic growth driven by external changes.
The exit from the crisis in Great Britain and the United States was the most expensive in history. In Great Britain, banks had to be nationalized. The large volume of illiquid high-risk assets was the reason for recapitalization, liquidity provision, asset protection programs. In the United States, it was necessary to introduce a program for the purchase of distressed assets, issue guarantees on bank assets, and recapitalize banks.
The peculiarity of the way out of the crisis in Greece and Cyprus is that it is not the government of these countries that is saving these countries, but the European Union. During the period of anti-crisis measures, there was a clash between the interests of the countries and the union. The European Committee had no experience in crisis management. The losses from austerity budget were underestimated, the ability of politicians to implement their programs was optimistically assessed. The Greek authorities have delayed structural reforms, which have led to the need for unnecessary aid and painful cuts for citizens. Recently, Cypriot President Nikos Anastasiades asked EU leaders to reconsider the terms of the € 10 billion aid package, noting that the island is likely to fail to meet the necessary conditions under the agreement. The emphasis is on the fact that the losses to the Cyprus economy and the country's banking system turned out to be greater than initially expected. As an example, the situation with the restructuring of the country's largest banks (Bank of Cyprus, Laiki bank) is given, which, as Anastasiadis's letter says, was carried out “without the necessary careful preparation”, as a result of which many Cypriot companies were left without capital (the money was written off as losses from bank accounts or frozen), and the measures taken to control capital outflows ended up suffocating the economy. If the story with the revision of the package of measures to help Athens now begins to gain momentum, then this may well be a signal for a new phase of the European debt crisis.
Tab. 1 Comparison of crises and state strategies
Norway, 1991 |
Sweden, 1991 |
Mexico, 1994 |
||
Bad Debt Peak |
36% (of all loans) |
|||
Assessment of bank losses |
With delay |
With great delay |
||
Foreign exchange policy |
Devaluation (50% in two years) |
Switching to a floating exchange rate |
Switching to a floating exchange rate |
Devaluation (more than 50% in one year) |
Banking sector support |
||||
Nationalization |
3 largest banks - 80% of funds spent (2.2% of GDP) |
2 largest banks - 90% of all assets of the banking system, 98% of funds spent (3.5% of GDP) |
||
Dealing with bad assets |
Temporary redemption of assets for an IOU with an obligation to repurchase and retention of management rights |
Creation of state "bad" banks for two nationalized |
Temporary asset repurchase without repurchase obligations, with preservation of the right of management |
|
Liquidation of banks |
8 out of 43 banks closed (11% of bank capital) |
|||
Programs for support borrowers |
Granting a preferential rate, debt restructuring, de-dollarization |
Restructuring loans in indexed by CPI, help in debt restructuring |
||
Solving the problem of bad debts, improving foreign economic |
Rapid loss assessment and nationalization |
Lack of incentives for banks to get rid of bad debts |
||
Results of the crisis |
||||
Fall of GDP |
||||
Fiscal costs% of GDP |
42.9% (16.8% - net costs) |
|||
Average GDP growth |
4.3% (within 3 years after recovery) |
Tab. 2 Comparison of crises and state strategies
Japan, 1997 |
Korea, 1997 |
Indonesia, 1997 |
Turkey, 2000 |
Argentina, 2001 |
|
Bad Debt Peak |
|||||
Assessment of bank losses |
With great delay |
With great delay |
with delay |
With great delay |
|
Foreign exchange policy |
Switching to a floating exchange rate |
Devaluation and Floating |
Switching to a floating exchange rate |
Switching to a floating rate |
|
Banking sector support |
|||||
Nationalization |
2 large commercial |
12 banks (20% of system assets) |
|||
Dealing with bad assets |
Buying assets below par, creating a private market |
||||
Liquidation of banks |
5 banks closed (7% of bank assets) |
Closed 64 banks |
|||
Programs for support borrowers |
Clause on increasing lending in agreements on recapitalization of banks |
Restructuring program of the 5 largest chaebols, a scheme for solving the problems of small and medium-sized businesses |
restructuring |
Pesoization - the exchange of loans and deposits in dollars for pesos. |
|
Key role in overcoming crisis / error |
Delay in assessing losses and making decisions |
Solving the problem of bad debts |
Corrupt system device |
Successful restructuring |
Improvement of external economic what conditions |
Results of the crisis |
|||||
Fall of GDP |
|||||
Fiscal costs% of GDP |
|||||
Average GDP growth |
The most effective way out of the crisis is considered to be an experience that is not accompanied by a drop in GDP during the crisis. This was the way out of the crisis in Norway. Norway's fiscal costs were minimal.
Many scholars have noted a tendency for the Government to play an increasing role in overcoming banking crises, for example, by creating anti-crisis management programs. Programs should be developed in advance. The efficiency of overcoming the crisis depends on the speed and correctness of decisions made during a crisis.
Kiev National Economic University. Vadim Getman
Keywords
toxic bank assets, the model of management, strategical approaches, non-viable banks, optimization
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The article examines the essence of the bank's toxic assets, and proposes models for managing toxic assets. The problem of the effectiveness of methods for managing toxic assets of banks and the international experience of this process are investigated. It is shown that the solution to the problem of toxic assets is one of the means of resolving many socio-economic problems.
Scientific article text
Overcoming the negative consequences of the financial crisis, ensuring the stable development of the country and its progress on the path of international integration is directly related to solving the problem of "toxic" assets of banks and the possibility of clearing bank balances from them. D. Eliot, G. Karcheva, V. Geets, T. Girchenko, A. Dzyublyuk, L. Primostka made a significant contribution to the study of the management and restructuring of problem assets of banks. Separately, we note the works of I. Osadchy, V. Mishchenko, A. Tushnitsky. In the official speeches of E. Rosengren, President of the Federal Reserve Bank of Boston (FRS-Boston) at economic forums on the US exit from the recession after the financial crisis, attention was also focused on the importance of solving the problem of toxic assets: “It would be desirable to act quickly to withdraw troubled assets from bank balance sheets so that banks can re-focus on future prospects and not on past mistakes. " George Soros also believes that active participation of all interested countries is necessary in the development of anti-crisis measures aimed at solving the problem of "toxic" assets: "An international agreement on bad assets is needed, which will allow sharing the burden among all states, otherwise even more of them will suffer." The purpose of the article is to study the foreign experience of state participation in solving the problem of “toxic” assets, as well as to search for optimal methods of managing “toxic” assets in the banking sector of Ukraine, including options for clearing banks' balance sheets from them with minimal losses. Research methods include dialectical, abstract logical, economic analysis. In foreign practice, it is customary to mean "toxic assets" not just assets that have significantly depreciated, but those that are difficult to sell (that is, depreciated and hopeless). There are several approaches to the question of how to cleanse banks of "toxic" assets. The practice of buying out “toxic” assets can be viewed from the standpoint of the underlying strategy - European or American. It is believed that the American strategy for the buyback of "toxic" assets consists in their complete buyback, while the European strategy is mainly in working with banks in general and problem assets in particular. This article will consider examples of solving the problem of "toxic" assets of banks in the context of overcoming the crisis in different countries. A fairly well-known recipe in the world is the creation of a specialized institution to work with toxic assets (and sometimes liabilities) of problem banks. Problematic assets of several banks, separately or together with adequate liabilities, can be transferred into one banking structure, which, depending on the functions and structure performed, can be called differently: bad bank ("bad", or hospital, bank), bridge-bank (" bank-bridge ", or transitional bank), a specially created agency (financial company) for the management of distressed assets. Since the 70s, 20 Art. the government's bad credit facility was used to support the private sector in South Korea, Jamaica, Indonesia, Chile, and other countries experiencing problems in the banking sector. Quite indicative in this regard is the example of the financial crisis in Southeast Asia, which led to significant crises in Thailand, South Korea, Indonesia and Malaysia. The common features of almost all countries were a low level of banking supervision standards, a high concentration of loans, a significant degree of government interference in the management of the banking system, and others. The scenario of banking crises in Mexico and Chile was similar to the Asian crisis: weak banking supervision, corruption and inflation, currency depreciation. Thus, in the late 1970s, Chile liberalized banking activities and eased restrictions on the pricing of loans without adequate changes in banking supervision. The increase in bank lending contributed to the economic recovery, followed by a rise in inflation and interest rates, which, in turn, led to a revaluation of assets in many sectors of the economy. The next economic downturn led to bankruptcy of enterprises and panic withdrawal of deposits by the population. The central bank was forced to buy from banks problem foreign currency loans, and subsequently other problem loans at their original cost, subject to their repurchase by banks at the expense of their future income. In Mexico in the 1980s, authorities resorted to similar measures. In exchange for toxic assets, banks received government securities. If these liabilities were not repaid on time, they were converted into the bank's equity capital, and the deposit insurer received the ownership of the bank. Subsequently, an asset management company was created to work with toxic loans. Activities for the return of problem loans provided for government assistance to certain groups of borrowers. At the first stage, foreign banks were prohibited from acquiring Mexican banks, but the restrictions were subsequently loosened, and as a result, Canadian, Spanish, British and American capital entered the banking sector in Mexico. The banking system of South Korea in the 1980s. 20 Art. was controlled by the government, was unprofitable, and its governance and banking supervision were ineffective. The depreciation of the Korean won and the outflow of short-term foreign currency funds triggered a banking crisis, which immediately affected the solvency of banks. Many of them went bankrupt, there were mergers of small banks, and subsequently large problem banks, some problem banks were provided with direct government assistance. In the pre-crisis period, a special state organization (hamsa) worked in South Korea, which was engaged in the acquisition of "toxic" loans from "healthy" banks. Banks in the post-crisis period were supported mainly by the Deposit Insurance Corporation (KDIC), by injecting equity capital into the capital of banks with toxic assets. The purchase of the assets was financed by KDIC, and the debt collection obligations were transferred to the Hamsa. Most of the banks that received assistance stabilized their work, and KDIC sold its shares in their capital. However, the collection of the hamsa debts proceeded rather slowly, it was associated with certain bureaucratic procedures. But in general, it was created for the speedy overcoming of the consequences of the world financial crisis of 1997-1998. the state-owned distressed asset management company has shown its high efficiency in Korea. At the beginning of the Asian crisis in the early 90s. 20 Art. Indonesia's banking system was particularly vulnerable. Weak state-owned banks with poor governance accounted for about 40% of the total. The level of concentration of resources and dollar loans was very high, the national currency - the rupee - was overvalued, and the legal system was corrupt. The currency devaluation was significant, which created serious problems for borrowers and the country's banking sector. The Indonesian government and the World Bank have established the Indonesian Bank Restructuring Agency (Arbi), which is designed, on the one hand, to provide full protection to depositors and most creditors of banks, and on the other hand, is responsible for restructuring problem banks and collecting problem loans. The agency fully bought out several weak private banks (some later merged) and provided partial assistance to troubled private banks that were considered potentially viable. Thus, Arbi acquired "toxic" loans from several fairly effective banks, with the issuance of permission to them to buy out a share in the share capital from the Agency. However, the prices of such a buyout were significantly higher than the funds invested in toxic loans by the Agency. At the same time, the Agency acted very slowly in order to get rid of problem banks and "toxic" banking assets with the least destructive consequences for the economy, and the results of these actions should be assessed as highly effective. The practice of buying out the “toxic” assets of failed banks by state-owned asset management companies is also widespread in China. To stabilize the leading banks, the PRC government invests substantial sums in them through state-owned asset management companies until the banks become attractive to private investors. At the same time, under such a scheme, problem banks do not acquire skills in managing bad loans, but transfer them to asset management companies. If we give the example of Russia, then after the financial crisis of 2008, closed-end mutual funds were formed there. The funds exchanged bad loans for their securities, that is, they actually carried out collection activities. The state did not finance them. A Specialized Fund for the Accumulation and Repurchase of Distressed Assets was also created - with mixed financing (state funds plus international grants). The fund exchanged problem loans for domestic government bonds of the Russian government, undertaking obligations to collect debts from the borrower in the future. So, to get rid of Russian banks from "toxic" assets, experts have identified two ways: subordinated lending to banks or the procedure for entering capital. The experience of the Republic of Kazakhstan is also indicative in the context of the issues under study. At the initiative of the Ministry of Finance of Kazakhstan, the Distressed Assets Fund was established in 2008, the purpose of which is to improve the quality of the loan portfolio of Kazakh banks. The fund operates by buying out doubtful assets of banks and then manages them. The acquisition of assets is carried out at the book value, taking into account the volume of created reserves, taking into account the discount. The buyback of doubtful assets provides an opportunity to free the assets of banks from toxic assets and forces banks to recognize their losses. Another textbook example in working with "toxic assets" - the problem of many banks in the world - banks in Ireland. The generous, but not disinterested distribution of loans for the purchase of housing by ten leading development firms turned into a bad debt and a real threat of bankruptcy during the global financial crisis. The state came to the rescue. From April 1, 2010 The National Asset Management Agency has taken over the duties of a repository of "bad" assets. The government of the Republic of Ireland instructed the agency to siphon from six problem banks at least 20% of the loan portfolio, which amounted to more than 80 billion euros. The state bought out bad debts at a discount (47%) - this measure was dubbed by the banks "hair cut", but all the same, about 17 billion euros had to be allocated from the Irish budget for this purpose. The Central Bank of Ireland has set strict capital requirements: Allied Irish Banks was forced to urgently capitalize on 7.4 billion euros, and Bank of Ireland - 2.7 billion. The state acted proactively to avoid the worst-case scenario - an epidemic of bank bankruptcies. However, in rescuing the banking system, the Irish government did not conceal the truth that the main culprit of the non-payment crisis was the banks themselves, which pursued unjustifiably risky credit policies. In Spain, which is also experiencing the consequences of the financial crisis, a special bank has been organized since December 1, 2012, to which other banks in the country can sell (with a discount of 20-70%) part of their own toxic assets associated with the real estate market and became "problematic" after the collapse of the mortgage market in 2008. Due to the accumulated mass of such assets, the eurozone countries in June 2012 agreed to provide Spain with 100 billion euros to recapitalize the affected banks, some of the government had to urgently nationalize. A state-owned company called the Banking Reorganization Asset Management Society or Bad Bank first bought assets from Spain's most troubled banks - Bankia, Catalunya Banc, Nova Galicia and Banco de Valencia. It was, first of all, about real estate, which was transferred to these banks from bankrupt construction companies or private individuals who were unable to repay loans previously issued to them. The banks could not sell this property on their own, and thus clear and replenish their balance sheets: there is a crisis, there is no demand for real estate. In fact, the created "Society" was, rather, not a bank, but a real estate company. Its total fund was determined by the government at 90 billion euros, which was approximately half of the amount that the Spanish Central Bank estimated the toxic mortgage loans in the country - 182 billion euros. And the total amount of potentially problem assets of Spanish banks was estimated by independent auditors at 1.5 trillion euros. To accumulate funds, the stake was made not only on state funds, but also on funds from private investors who were ready to become shareholders of a “bad bank”. For them, for example, a minimum income tax was established - only 1%. In addition, private investors were promised dividends on average 15% per annum for 15 years. The Spanish government's desire to attract private investors and limit the state's participation in the "bad bank" is explained by the fact that the rescue of banks at the expense of the state budget is unpopular among the population protesting against the government's significant tutelage of banks. As a result of the work carried out at the preliminary stage, the shareholders of the “bad bank”, in addition to the state, became relatively prosperous Spanish banks (Santander and BBVA), insurance companies and pension funds, as well as private investors. It is important to note that the creation of a "bad bank" was one of the conditions of the eurozone countries to provide Spain with 100 billion euros for the recapitalization of "problem" banks. The second condition was the reorganization and reduction of the staff of problem banks. For example, Bankia cut its staff by 25% during the year, closed about 1/3 of all its branches and minimized remuneration for top managers. The experts did not rule out the prospect of a merger of banks, as well as a modification of the business model and organizational structure. Federal government of Germany in 2009 also faced the need to develop a bank rescue plan. The proposed financial sector support program was supposed to help banks cope with the consequences of the crisis in such a way that the state did not buy all high-risk assets at once and did not nationalize the banks. Within the framework of this program, it was supposed to create a Bad Bank Light model, when the state bought high-risk assets, and banks compensated for possible losses in the long term. In the case of the launch of the classic Bad Bank program, as noted earlier, the state actually buys up the so-called “toxic” assets from banks in financial difficulties and takes on all the bank's losses. In contrast to this scenario, the Bad Bank Light program assumes a so-called “lightweight version of a bad bank” model. Its essence lies in the fact that the state buys high-risk assets in exchange for the bank's guarantee to return losses in the long term. In addition, within 40-50 years, the state will receive part of the banks' profits as compensation. Thus, there is no need to make urgent injections from public funds to ensure the bank's liquidity. A “lightweight version of a bad bank” can quickly take some of the burden off banks. However, for many years, banks will participate in financing their unreliable assets. Note that a similar program to support the financial sector has already been used in Germany: after the reunification in 1990, the state under the same conditions bought risky assets of the banks of the former GDR. Sweden has the most successful, stable and long-term experience in solving the problem of toxic assets. She was the first Western country to start buying out bad assets. Moreover, long before the last financial crisis - in the mid-90s. A study of the historical details of the Swedish experience revealed a number of important circumstances. Thus, a set of measures to resolve the triple crisis - industrial, banking and currency, involved in 1991 - 1994. by the Swedish government, borrowed from the American experience. These measures not only arose from the theoretical developments of American economists, but were also coordinated by them. In the early 1980s, Sweden adopted a neoliberal model of monetarism based on the dominance of bank capital in the economy, so American economists were directly interested in successfully solving the problem of toxic assets. The nationalization that underlies the “Swedish experience” essentially marked the complete and final destruction of the model of “Swedish socialism,” which for many years served as the ideal of economists and politicians in the post-communist era. As a result, Sweden has fully adapted the neoliberal model of financial capitalism. In 1992, the government took a number of measures that went down in history under the name of the "Swedish experience in working with toxic assets", namely: 1. The decision to fully guarantee the entire banking system (114 banks). This decision, formally approved by Parliament in December 1992, provided protection of the state from losses to all creditors except shareholders. The guarantee was provided without any restrictions in terms of volume, that is, for the entire amount of possible non-refunds on payments. This is an unprecedented example in modern economic history. 2. For the reorganization of the banking system, a special department was created - the Bank Support Authority, which was engaged in the segregation of bank assets: the "good" ones were kept on the balance sheet, and the "bad" ones were moved into a single "bad bank" (bad bank). The role of the "bad bank" was played by two specialized structures established by the Bank Support Authority - "Securum" and "Retriva". The idea was that, instead of being urgently liquidated at minimal prices, bad loans were restructured in a “bad bank” that could wait out the crisis and, after restoring the solvency of debtors, return loans to the market at a decent price. Moreover, "Securum" and "Retriva" bought out problematic, but not hopeless assets from banks, trying to revive them. It is important to note that "terminally ill" loans were simply written off. BSA entered into an agreement with banks that wished to take advantage of the state's support, under the terms of which the first tranche of losses was covered by shareholders, and subsequent losses were exchanged for a share of the state (represented by BSA). Government intervention in private banks in Sweden resulted in the reorganization of three banks - Nordbanken, Första Sparbanken and Gota Bank. Bank Första received a loan from the state in 1991, Bank Gota - in 1992. In both cases, it was a question of the banks' inability to comply with the government's requirement to maintain an 8 percent minimum working capital. The lion's share of direct money investments went to Nordbanken, in which, even before the crisis, the state's share was 70%. The state bought out the remaining 30% of shares from private shareholders of Nordbanken, restructured the bank, merged it with the Gota bank and in 1995 transferred it to private hands, having almost zero losses. Nordbanken and Gota bank received 98% of all state investments. The four other largest banks in Sweden - Föreningsbanken, S-E-Banken, Swedbank and Svenska Handelsbanken - refused government assistance, seeking an opportunity to increase working capital through internal reserves of shareholders and private investment. 3. Concessional lending to banks was provided by the Central Bank of Sweden (Riksbank), which also undertook obligations to cover the debt of local banks on loans received abroad. Taking measures to reorganize the economy, the Swedish government has made an emphasis on overcoming the panic in Sweden's domestic markets, as well as restoring the confidence of international investment capital in the country. Both goals were achieved in the shortest possible time. First, the Swedish financial crisis was highly localized and in no way destabilized the European or American financial markets. Secondly, the volume of "toxic assets" of Swedish borrowers in absolute terms was insignificant. The experiment is considered to be a success: Sweden emerged from the financial crisis of the first half of the 1990s with a completely restructured banking system. In the USA after the 2008 crisis. also inventoried all bad assets, then put them up for auction and exchanged them for securities of the Federal Deposit Insurance Corporation at a significant discount. The concept of creating a collector bank was key to the Obama-Geithner Financial Stability Plan, adopted by the US Congress in February 2009. In general, the US government spent about $ 1 trillion to clean up the bank balance sheets of "toxic" assets. So, the term “toxic assets” came to the Ukrainian market from more developed financial markets, however, the underdeveloped stock market of Ukraine and the lack of trading in derivatives to some extent saved banks (unlike foreign ones) from serious problems. Ukrainian banks, in the main, are faced with the need to resolve the issue of problem loans, but they have specific features and differ from the concept of “toxic assets” in foreign practice. Based on the above, we conclude that under “toxic assets” abroad it is customary to mean not just assets that have significantly depreciated, but those that are difficult to sell (that is, depreciated and hopeless). In the realities of the Ukrainian banking sector, "toxic assets" are, first of all, mortgage loans issued by banks. The problem of toxic assets of banks in Ukraine has not yet been resolved. Debt restructuring tools (both corporate and individual) have not yet been effectively used. Moreover, the issues of restructuring foreign currency loans are accompanied by loud social debates and political populism. To resolve the issue of “high toxicity” of assets, there is the following toolkit: 1. Out-of-court debt restructuring. This is the introduction of the best practices of the "London Approach" into Ukrainian legislation. The main goal of this approach is to reduce the losses of the creditor bank as much as possible. The basic principles of the approach are as follows: 1) the creditor bank takes a benevolent position towards the borrower in a difficult situation; 2) the decision about the future of the borrower-debtor is made only on the basis of well-verified objective information that all interested parties receive; 3) the bank and other lenders jointly work out a common line on the question of whether it is possible to provide this borrower with additional financial assistance to ensure a way out of the crisis and in what form; 4) costs and losses are distributed taking into account the interests of all parties involved. Borrowers (debtors of banks), who will be able to participate in the process, will have to prove that they are ready to take responsibility for repayment of the arisen debt. The costs and commissions associated with the "recovery" often add up to a fairly impressive amount that falls on the shoulders of the debtor. These costs are very burdensome for a debtor who is in a difficult financial situation. Therefore, the creditor bank must ensure that its claims are within reasonable limits and would be acceptable to the debtor in the present and in the future. The introduction of the London Approach toolkit into Ukrainian practice will reduce the overall level of toxicity in the banking system. Over time, the successful application of this toolkit will pave the way for the return of confidence in banks and the resumption of lending. 2. The mechanism of reorganization through specialized financial institutions after cutting the bank balance according to the Good Bank, Bad Bank system (which was discussed in detail above and is the most effective option for solving the problem of "toxic" assets) 3. Transparent conversion of mortgage foreign currency loans, in which all three the parties (creditor banks, individual borrowers and the state) can share responsibility on an equal footing. At the same time, the entire burden cannot be shifted to the banking sector. Taking into account international experience in solving the problem of "toxic" assets, the banks of Ukraine can recommend the following operational and tactical measures aimed at solving the problem of banks' overdue debts in the context of overcoming the crisis: · Assessment of the "toxicity" of bank assets and liquidation of the portfolio of problem loans. · Complete segregation of the bank's non-core businesses and core businesses (with subsequent disposal of the bank's non-core businesses). · Review and revaluation of loan portfolios. Taking measures on loan portfolios that have suffered the most during the crisis (revision of limits, restructuring, new repayment schedule. Development and implementation of a plan for financial recovery of the bank and assessment of real external pressure on the bank and its liquidity. partial privatization; 3) withdrawal of toxic assets to another bank according to the Good Bank, Bad Bank model Implementation of these measures will allow to revise and optimize the strategies and business models of banks. it may, but it should offer the most effective solution to the problem. There are five lessons to be learned from dealing with toxic assets in different countries. Problems can be effectively solved if there is: 1) political will; 2) financing; 3) real expectations of the price at which "toxic" assets will be sold; 4) the regulatory framework that regulates the activities of asset management companies; 5) market transparency.
Analysts of the UMACP believe that a systemic banking crisis is going on in the Russian Federation, and in the next 12 months there are serious fears of its aggravation. Experts believe that the time is not far off when problem bank loans will become more than 10% of their total number, as a result, at least one systemically important bank will need additional capitalization and assistance from the state.
The Center for Macroeconomic Analysis and Short-Term Forecasting expects that a systemic banking crisis will arise in Russia by September next year. This was reported by RBC with reference to the CMASF review published today. Experts believe that at the moment the probability of its appearance has already exceeded the critical threshold - at the beginning of September the consolidated leading indicator reached 0.105, while its threshold value is 0.098.
When a systemic banking crisis hits
A systemic banking crisis is understood as a situation characterized by the implementation of one of the following conditions:
- Clients withdraw a significant proportion of funds from deposits and accounts
- The number of bad assets among total assets is more than 10%
- Over 10% of banks are nationalized or reorganized
- The state is carrying out a large-scale simultaneous additional capitalization of banks with a volume of more than 2% of GDP
If we talk about the last two measures, then they are forced and are aimed at leveling the consequences of the outflow of customer funds from banks, as well as an increase in problem assets.
Analysts of CMASF report that in the first quarter of 2014, funds on deposits and accounts decreased by 1.4%, while funds of individuals decreased immediately by 3.9%. This is one of the conditions. The review says that since that time it can be considered that a systemic crisis has begun in the banking sector ”.
According to analysts, in the near future the share of complex assets of the entire system of banks will exceed 10%, at the moment it is slightly more than 8%. In addition, CMASF reports that at least one of the systemically important banks will need government assistance, since it will lose stability. The report says: "You can come to this if you analyze the dynamics of overdue loans, as well as capital adequacy indicators of banks in the Russian Federation."
Three factors that will help the banking system of Russia
At the same time, they do not assess the current situation as catastrophic, in their opinion, there are 3 factors that will help to overcome the banking crisis. The first is that a decrease in the real effective exchange rate of the ruble has a positive effect on the banking system. The document says that until the decline becomes a landslide, it will help enterprises that compete with imports to restore profitability, as well as support exporters. In addition, the process of increasing unemployment slowed down, as a result, the likelihood of an increase in the number of insolvent borrowers - individuals - decreased. Also, analysts of TsMAKP draw attention to the importance of the share of loans to the population and the corporate sector in GDP: “The growth of this indicator decreased due to the cooling of the retail lending market. This creates the preconditions for stabilizing the debt burden ”.
According to analysts, these three factors in the near future will help to end the banking crisis that has begun.
The forms of manifestation of a systemic banking crisis, in accordance with their characteristics, can be considered at two levels - a deeper and a superficial one.
In the first case, these forms are not always obvious (not visible to the "naked eye") and to identify them, it is necessary to a certain extent to be able to analyze the situation in the banking sector. Such forms of manifestation of a crisis situation in this area can be considered the above points, which are usually called circumstances, or factors that make the crisis a reality (nine such points were highlighted, but, apparently, more can be named). As a rule, they refer to the initial phase of the crisis, when it is just unfolding, almost imperceptibly, secretly gaining strength.
Superficial forms of manifestation of a systemic crisis are usually obvious to everyone who is interested in this issue. These include, for example, the following:
- a sharp decrease in the volume of activity or the actual termination of a large number of banks of basic operations (significant delays or complete suspension of customer payments, "freezing" of credit operations, non-return of customers to their deposits and deposits, etc.) or any operations in general.
- an unusually large number of central bank license reviews from banks;
- almost instantaneous disappearance of the interbank market (it then has to be re-created);
- the emergence of a relatively large number of proposals from banks about their readiness to conduct transactions on terms that clearly differ from the average market;
- widespread panic in society in relation to all banks and all kinds of financial organizations in general;
- activation of procedures for liquidation of non-viable KOs.
Superficial forms of manifestation of systemic shock are characteristic of the "summit" phase of the crisis and, to a lesser extent, for the final phase.
The main consequences of the systemic crisis
The consequences of a systemic banking crisis are quite diverse, but they are different for one or another party related to banking.
For society as a whole the onset of a systemic banking crisis and its overcoming means:
- decrease in total social capital, the size of national wealth, decline in production, decrease in gross domestic product (hereinafter - GDP);
- fiscal destabilization, high inflation and demonetization of the economy;
- general deterioration of the situation in the economy, assessments of this situation (including from foreign business circles) and prospects for its improvement;
- aggravation in the sphere of social relations and the need to quickly relieve the tension that has arisen;
- the need to develop new approaches to organizing and managing not only the banking sector, but also the entire economy and to implement a set of practical measures based on such approaches;
- the need to incur more or less significant unforeseen expenses.
For bank customers the same process would mean:
- loss of more or less of the money they entrusted to banks that could not survive the crisis;
- deterioration of business conditions (for enterprises, organizations, individual entrepreneurs), conditions of banking services for individuals;
- undermining the financial position of borrowers due to the deteriorating economic situation in the country, the growth of their overdue and bad debts to banks;
- the need to search for other (reliable) banks, if the previous ones have failed;
- perhaps, the need to revise relations with banks that managed to survive the wave of the crisis and maintain their efficiency.
For the banking community as a whole the consequences can be as follows:
- decrease in total bank capital;
- decline in the value of banking sector assets;
- withdrawal by some clients of their funds even from reliable banks (reduction of the resource base of the banking system);
- deterioration in the quality of banks' loan portfolios;
- the emergence or strengthening of the discrepancy between the liabilities and assets of banks in terms of volumes and terms;
- more or less complete loss of solvency and liquidity by banks;
- falling confidence in banks in general;
- decrease in the volume of transactions and profits;
- redistribution of clientele between banks that remained "afloat";
- the need to clarify the nature of customer relationships;
- the emergence of tension in relations with society, bodies regulating the banking sector, in general with the authorities, with auxiliary organizations;
- reduction of the network of banking institutions (geographically remote subdivisions of banks).
- the emergence of negative trends in the labor market of banking specialists;
- the need at least to adjust the development strategy, policy in relation to different areas of activity and all processes of organizing management in banks;
- the need to participate, including with your finances, in activities designed to improve the situation.
Moreover, each of the listed points allows and even suggests a more detailed decoding.
Thus, banking crises are more than undesirable phenomena, leading to severe general economic and social consequences. Among all the possible immediate consequences of a systemic banking crisis, none can be found that could be interpreted as positive or beneficial. Only the more distant consequences of the crisis, more precisely, not the crisis itself, but the lessons that society will learn from it, the implementation of those adequate, correct decisions that will be made on the basis of a sober analysis of the causes and pictures of the course of the crisis, can turn out to be positive.
Practice questions
In 2011, the ratio of banking sector assets to GDP increased from 74.8% to 76.3%. In fig. 1.1 in the form of a diagram, comparative data of this indicator in Russia with the BRICS countries and the European Union are presented.
Rice. 1.1.
In 2011, the ratio of the banking sector's capital to GDP amounted to 9.6%, having decreased by 0.9 percentage points over the year. The main source of the formation of the resource base of corporate entities at the end of 2011 (as in the last previous years) were deposits of individuals: the ratio of their volume to GDP did not change and amounted to 21.7%. The ratio of deposits of non-financial organizations to GDP increased by 2% and amounted to 15.3%. The ratio of the total volume of issued loans to GDP increased by 3.6% and amounted to 52.6%, while their share in the total assets of the banking sector increased by 3.4% and amounted to 68.9%. The ratio of loans to non-financial organizations and individuals to GDP increased by 2.4% and amounted to 42.6%.
In 2011, the number of operating KOs decreased by 34 units - to 978 organizations. During 2011, licenses were revoked from 22 KOs; in connection with reorganization in the form of affiliation, 18 KOs were excluded from the State Registration Book; received a license to carry out banking operations five new KOs. Thus, in 2011, the trend of the last years of a decrease in the number of operating KOs continued (Fig. 1.2).
Rice. 1.2.
Table 1.1 presents data on the number of liquidated credit institutions for 2007–2011. (For comparison, data on the number of banks liquidated in the United States over these years are indicated)
Table 1.1. Number of liquidated KOs
Liquidated CRs in the Russian Federation |
|||||
Liquidated banks in the USA |
In 2011, a decrease in the number of operating CRs was typical for most Russian regions: the number of regional banks decreased from 487 to 466. The growth rate of assets of regional banks (7.8%) in 2011 was lower than the growth rate of assets of the banking sector as a whole (23 ,one%). As a result, the share of regional banks' assets in total assets at the end of the year decreased from 13.7% to 12%. The capital of regional banks for the year increased by 5.5%, or by 33.4 billion rubles. (capital of the banking sector - by 10.8%, or 509.8 billion rubles).
- Report of the Central Bank of the Russian Federation on the development of the banking sector and banking supervision in 2011. M .: Publishing house of the Bank of Russia. 2012.
- Data from the Central Bank of the Russian Federation and the Federal Deposit Insurance Corporation (FDIC).
A systemic banking crisis has begun in Russia, and in the coming year it is highly likely to worsen, RBC writes with reference to experts from the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASP) in its report. They believe that soon the share of bad assets in the assets of the banking system will exceed 10%, and at least one of the systemically important banks will need additional capitalization at the expense of the state.
CMASF experts described the high risk of a systemic banking crisis before September 2015 in a review published on Wednesday, October 15. According to the authors of the report, the likelihood of a banking crisis in Russia already exceeds the critical threshold.
CMASF experts call a systemic banking crisis a situation in which at least one of three conditions is realized: first, withdrawal by clients of a significant portion of funds from accounts and deposits; secondly, the share of bad assets in the total assets of the banking system exceeds 10%; third, reorganization or nationalization of a significant part (more than 10 banks or large-scale (in the amount of more than 2% of GDP) one-time recapitalization of banks by the state) is being carried out.The third measure is forced: its purpose is to smooth out the consequences of the outflow of client funds from banks and the growth of problem banking assets.
One of these conditions was fulfilled in the first quarter of 2014, according to experts of CMASF: funds of all categories of bank clients on accounts and deposits decreased by 1.4%, including funds of individuals - by 3.9%. "Formally, from this moment we can talk about the ongoing systemic crisis of the banking sector," - stated in the review.
Experts expect that in the near future the share of bad assets of the banking system will exceed 10% (now it is just over 8%). In addition, the CMASF report notes that at least one of the systemically important banks will lose stability and will need government support. “This conclusion is based on an analysis of the dynamics of overdue loans and capital adequacy indicators of Russian banks,” the document says.
However, experts do not consider the situation to be catastrophic and are confident that three factors can help to get out of the banking crisis. First, the decline in the real effective exchange rate of the ruble has an indirect positive effect on the banking system. The review indicates that while the decline is not a landslide, it is helping to restore the profitability of enterprises that compete with imports and exporters. In addition, the growth in unemployment has stalled, which reduces the risk of an increase in the number of insolvent borrowers - individuals. Also, CMASF experts note that the share of loans to enterprises and the population in GDP is important: “The growth of this indicator has stopped due to the cooling of the retail lending market. This creates the preconditions for stabilizing the level of debt burden ”.
- Yuzhakov O.Yu. Bank management in the context of the economic crisis: international experience. A systemic banking crisis has begun in russia A systemic crisis occurs when bad assets reach
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