The crisis of 2007-09 had a severe impact on the Russian banking sector with the effects lingering to the present day. The characteristic of the Russian banking system is typically a high asset and deposit base and capital concentration with a few state controlled banks and by an extremely huge number of small-sized banks. (Conrad 2009) The decline of commodity prices, huge oil price shocks, and fluctuation in the rouble made these banks highly vulnerable to an economic crisis. The other important characteristic of the Russian Banking system is its dependence on foreign funds. The crisis of 2009 led to the withdrawal of these funds by foreign investors both from the Russian markets as well as banks precipitating the banking crisis. (Solanko & Fungáčová 2010)
One could examine the events leading to the crisis in a little more detail. The global financial problems between 2007 and 2009 affected Russia in two ways. The first important factor was the liquidity problems that already had affected the banking sectors in the U.S. and in Europe, which also affected the Russian banking system. The second factor was the worldwide financial slowdown coupled by the decrease in commodity prices that led to large oil price fluctuations. (Philipp & Fidrmuc 2009) In addition, the bankruptcy of Lehman Brothers and the crisis in related financial firms had a major impact on the Russia’s banking system. (Barnard 2009)
In addition the conflict in Georgia increased the political instability of Russia which further weakened the confidence of international investors. This resulted in a “flight to quality” of international investors which led to massive losses on the Russian stock market. In the following months Russia did not only experience a severe banking crisis but also, due to the devaluation of the Russian ruble, a currency crisis; a so-called twin crisis. (Barnard 2009)
The effect of these events might be in hindsight for the Russian economy, but its effects continue to linger. There is a crisis brewing presently as hundreds of Russian banks are on the verge of shutting down doors for business. The old problems mentioned earlier coupled with Russia’s conflict with Ukraine and the sanctions by the West have led the Russian banking industry into a crisis similar to 2009. (Corcoran & Baraulina 2015)
Bibliography
Barnard, G. 2009. Russia’s Long and Winding Road to a More Efficient and Resilient Banking Sector. Organisation for Economic Co-operation and Development (OECD). Retrieved from http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?doclanguage=en&cote=eco/wkp(2009)72
Conrad, J. 2009. Russia in the Financial Crisis and Beyond. ed. L.Maria & Nestmann T, Deutsche Bank Research, Frankfurt Am Main.
Corcoran, J & Baraulina, A. 2015. The Coming Die-Off in the Russian Banking Sector. Bloomberg. Retrieved from http://www.bloomberg.com/news/articles/2015-04-15/russian-banks-vanish-as-crisis-accelerates-cleanup
Philipp J & Fidrmuc J. 2009, The Outbreak of the Russian Banking Crisis. Department of Economics: University of Munich Publication, Munich.
Solanko, L & Fungáčová Z. 2010. ‘The Russian Banking Industry after the 2008–2009 Financial Crisis – What Next?’ Russian Analytical Digest. Vol. 74. No. 10. pp. 2 – 4.
