Imagine if you woke up one morning, took a quick shower, grabbed a cup of joe, hopped in your car, and began driving to work. And as you drove, you noticed bank after bank after bank along your commute -- all boarded up. Well, perhaps not all of them, but about one in five.
Would you be worried? Nervous? Overcome by a sense of impending doom?
Not if you lived in Russia. On the contrary, the announcement yesterday that roughly 20% of Russian banks didn't qualify to have their accounts insured by the Russian Central Bank is happy news. According to the Moscow Times, the Russian Central Bank's Deposit Insurance Agency has just reported that out of more than 1,100 banks that applied to have their accounts insured, only 927 lenders made the grade.
Effective this morning, the remaining 200-odd banks will be banned from accepting any new retail deposits or renewing contracts (many Russian bank accounts act like U.S. certificates of deposit, and must be "renewed" from time to time). After reviewing these banks' books, the Agency determined that the unlucky 200 were insufficiently liquid, their ownership too opaque, and their risk management too, er, risky, for the Central Bank to underwrite even the lowly deposit amount of 100,000 rubles (about $3,500) for their customers.
Granted, customers of those unsound banks will probably not be thrilled to hear this news, and I wouldn't be at all surprised to see a run on the unstable banks take place around about, oh, right now. But the good news is that the 927 banks that did make the grade hold 99.2% of all retail deposits in the country. So the panic and mayhem should be fairly limited in scope.
Moreover, after the cleaning of banking houses has run its course, Russian depositors should feel much more secure entrusting their savings to the surviving banks, to the benefit of whomever it is that owns them.
Speaking of which -- who does own them? For the most part, the Russian government dominates the banking business through its Sberbank arm. But foreign bankers also stand to benefit. Their ranks include familiar names such as Citibank
For more Foolish news and views on Russian investing, read:
- Trading Lire for Rubles
- GE Banks on Russia
- Investing in Russia? Try Funds
- Bank on Russia's Instability
Fool contributor Rich Smith does not own shares of any company named above.