Tinker, Tailor, Soldier, Central Banker?

What are the most dangerous jobs?

Photo Luc Viatour. Source: Wikipedia

Several professions come to mind: stunt performers, combat troops, firefighters. But have you ever thought that being a central banker could merit hazard pay?

That’s certainly the case in Russia. Ten years ago, their chief bank examiner, Andrey Kozlov, was shot and killed by two gunmen. He had been investigating money laundering and other financial crimes. In Russia at that time, many of the banks were controlled by organized crime groups. He had just shut down VIP-Bank, and the bank’s chief executive was enraged. He organized Kozlov’s murder, paying about $300,000 for the hit.

Kozlov had been trying to curb Russia’s free-for-all financial system, where banks had become sources of speculation and illicit cash rather than lenders and deposit-takers. He’d move shut down a bank and he’d get threatening phone calls on his old vertushka – the special telephone Russian officials have installed at their desks. But he ignored these and pushed forward, trying to clear out the rot inside the banking system. Without a sound financial infrastructure, an economy can’t move forward.

The current head of Russia’s central bank, Elvira Nabiullina, has also been aggressive. Since her appointment in 2014, she has closed down one in every three banks – almost 300. Some of these banks were among the largest in the country, but they had shockingly poor finances: accounts that held only $10,000 instead of $50 million, as claimed, or loans to fictitious entities. One legislator claimed that almost all the privately held banks have time bombs inside their balance sheets, and the only way for regulators to know how bad things are is for them to shut the banks down and track down the assets.

With oil prices at half of their former level, Russia has to tighten up its financial regulatory structure. The tide has gone out, and bad assets can no longer be papered over. Nabiullina has made strides in this direction, firing examiners who move too slowly, and proposing new laws that would stop suspect bankers from fleeing the country. It’s important that Russia clean up its financial mess. They’re a $1.3 trillion economy, the 12th largest in the world.

But she needs Putin’s support. Russia has been called a financial “wild west.” If the sheriff is going to clean things up, she can’t be worried about her back.

Douglas R. Tengdin, CFA

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By | 2017-07-17T12:21:27+00:00 March 16th, 2017|Global Market Update|0 Comments

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