The Task of Creating a Financial Mega-Regulator Must Involve a Distinct Definition of Its Goals
The issue of creating a financial mega-regulator must be dealt with operatively, said Head of the State Vladimir Putin on 2 October 2012. He urged the banking sector and the investor community to join the discussion of that issue.
A fundamental reform of the financial market and the creation of a single agency that will supervise both banks and financial institutions has been discussed by officials for more than ten years, and now, for the first time, it may actually be implemented.
However, in spite of the decade-old history of debates around the idea of a Russian mega-regulator, at the moment this decision appears to be too hasty because there is really no fundamental substantiation for the existence of such a structure in the present situation.
Enlargement of financial regulators and creation of mega-regulators has recently become to a certain extent a global trend. By electing to establish such an agency, Russia replicates foreign experience. However, the majority of the existing mega-regulators have been created either in developed economies, or on the relatively small markets of developing countries. Thus, none of the BRIC countries has yet switched over to a centralized model of financial market regulation.
There are reasons to fear that the decision to create a mega-regulator in Russia has been sped up by the state apparatus for whom it would be easier to merge the currently different financial functions under the auspices of one body, and it has little to do with the desire to truly improve the quality of financial regulation.
The creation of a mega-regulator would have appeared better substantiated in the eyes of the expert community if the relevant decision-making process were to be accompanied by clear formulation of the goals set for the new agency. These goals may include the implementation of a coordinated policy in the sphere of financial markets regulation; control of the systemic risks inherent in the financial system; organization of monitoring of the situation in the financial system; and advanced forecasting of possible crises in the financial sphere.
Besides, the decisions adopted by a mega-regulator must address the entire financial market, and not only some of its segments, as it happens now. Here is one simple example. The Bank of Russia’s decision to impose restrictions on the interest rates on deposits will probably have a beneficial effect on the banking sector’s stability by ruling out the most risky forms of crediting. However, no regard has been given in this connection to the behavior of depositors with a strong inclination to risk, as well as to the effect of the resulting saving inflow on the situation in the other segments of the financial system, which in search of higher yields will leave the banking sector for micro-financial organizations and the stock market.
M. Yu. Khromov – researcher, Structural Research Center
However, in spite of the decade-old history of debates around the idea of a Russian mega-regulator, at the moment this decision appears to be too hasty because there is really no fundamental substantiation for the existence of such a structure in the present situation.
Enlargement of financial regulators and creation of mega-regulators has recently become to a certain extent a global trend. By electing to establish such an agency, Russia replicates foreign experience. However, the majority of the existing mega-regulators have been created either in developed economies, or on the relatively small markets of developing countries. Thus, none of the BRIC countries has yet switched over to a centralized model of financial market regulation.
There are reasons to fear that the decision to create a mega-regulator in Russia has been sped up by the state apparatus for whom it would be easier to merge the currently different financial functions under the auspices of one body, and it has little to do with the desire to truly improve the quality of financial regulation.
The creation of a mega-regulator would have appeared better substantiated in the eyes of the expert community if the relevant decision-making process were to be accompanied by clear formulation of the goals set for the new agency. These goals may include the implementation of a coordinated policy in the sphere of financial markets regulation; control of the systemic risks inherent in the financial system; organization of monitoring of the situation in the financial system; and advanced forecasting of possible crises in the financial sphere.
Besides, the decisions adopted by a mega-regulator must address the entire financial market, and not only some of its segments, as it happens now. Here is one simple example. The Bank of Russia’s decision to impose restrictions on the interest rates on deposits will probably have a beneficial effect on the banking sector’s stability by ruling out the most risky forms of crediting. However, no regard has been given in this connection to the behavior of depositors with a strong inclination to risk, as well as to the effect of the resulting saving inflow on the situation in the other segments of the financial system, which in search of higher yields will leave the banking sector for micro-financial organizations and the stock market.
M. Yu. Khromov – researcher, Structural Research Center