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“People Are Bringing “Under Mattresses’’ Savings to Banks. And this is Only the Beginning” FINANCIAL IZVESTIA, DATED NOVEMBER 23, 2005, Interview of A. Tourbanov, General Director, State Corporation “Deposit Insurance Agency”

Date: 23.11.2005

Banks' depositors will soon be able to sleep quietly. Presently, if a bank goes bankrupt, deposit insurance system (DIS) will guarantee reimbursement only up to a limit of 100,000 rubles. Already in 2006 the coverage limit will go up to RUR 200,000 and in 2007 – up to RUR 300,000. In a more distant perspective – reimbursement will exceed 600,000 rubles. General Director of Deposit Insurance Agency, A. Tourbanov, in his interview to Izvestia reporter, Igor Moiseev, said that insurance in future would, probably, cover not only bank deposits, but other investments as well – for example, such as investments in mutual funds.

Reporter : Alexander Vladimirovich, in September after the latest group of participants joined DIS, actually its formation was completed. What goals and objective does your agency set itself now, naturally, in addition to refinement?

Tourbanov : If I tell you that in the nearest perspective we are planning to review insured deposits payout mechanism, it may give rise to unjustified agitation, as these mechanisms can be processed only in case of bank's bankruptcy. As you may be aware, we do not anticipate such events in the nearest future. Nevertheless, we are planning to specify payout methodology taking into account our practical experience gained as a result of the first triggering event.

•  So far, you have had only one triggering event ?

•  Yes, during 2005 only one DIS participant went bankrupt, and we believe the forecast we provided for the year 2005 (“without bankruptcies”) turned out to be close to reality. In the nearest time we expect the State Duma to adopt proposals on deposit insurance law refinement. I would like to remind you that the proposed amendments stipulate insurance coverage increase from RUR 100,000 to RUR 300,000. At DIS commissioning stage – 100,000 rubles limit was quite sufficient – it guaranteed full value reimbursement of above 98% deposits. However, our research has shown that in one third DIS-participating banks the above limit covers only 10% deposits. Therefore, we decided that DIS should turn countenance to average depositor.

The first part of our proposals consists in increasing as of July 2006 reimbursement ceiling to RUR 200,000. Furthermore, as of July 1, 2007 the coverage limit could be 300,000 rubles. In this case it seems appropriate to place partial risks on depositor's shoulders. If in case of RUR 100,000 reimbursement – deposits should be guaranteed 100%, in case of RUR 200,000 coverage – deposits would be guaranteed 90% - and 10% will be depositor's risk. In mid-term perspective we can review the issue of getting close to European standards, i.e. when reimbursement will reach the equivalent of Euro 20,000. Mid-term perspective in this case will be about five years. I believe we can speak about such coverage increase by 2010.

•  Have qualitative changes occurred in the banking system since deposit insurance system was commissioned?

•  The data for 2005 give us every reason to conclude about visibility of DIS positive impact on the banking system. During 8 months of 2005 deposits growth rate was 33% compared to 19% during the same period of 2004. Besides, deposit growth surpasses public income growth rate. In our opinion, the above is a signal that “under the mattress” savings are being brought to banks. And it is just the beginning of the process. I am confident this trend will further continue.

•  Recently you spoke about possibility of spreading deposit insurance law to cover mutual funds' investors. How well has the idea been thought out?

•  I said I had seen such proposals in publications and thought - “why not?” If we speak about DIS development perspectives – there may be two basic directions. One of them – step by step increase in reimbursement coverage. The second direction will be expanding the number of entities whose interests have to be insured. Already when the original version of deposit insurance law was adopted, there were comments - why individual entrepreneurs not registered as legal entities as well as small business enterprises are not covered by the law. But we have other financial market segments where household funds are also invested. They do not have same protection as banks' depositors begin to be provided. Why the law should not encompass stock market, insurance and pension fund savings markets? I would like to make a reservation - what I mention does not mean we are ambitious to encompass that all. Local insurance systems - similar to DIS - can be established within the framework of Automobile Insurers Union. It is worth thinking about it. Once again, I would like to point out that we are not working in this direction and believe that in any case this is a matter of mid-term or long-tem perspectives.

•  Recently, CBR First Deputy Chairman, Tatyana Paramonova, stated that many banks whose capital in accordance with International Accounting Standards (IAS) is low, are not worthy to be DIS participants. Do you think the above statement is well justified?

•  I would like to mention that all banks during DIS entry examination process were estimated in accordance with IAS – including as per capital quality and adequacy criteria. If we take absolute characteristics, i.e. how large or small a given bank is – from the point of soundness, the smallest bank can turn the most ideal. May be, small credit organizations should be removed from bank category, but I believe there is no point to revise their current DIS- participant status.

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