The Mired Restructuring of Russia's Banking System

Much has been written about Russia's banking crisis, and it has become clear that the August 1998 devaluation and the ensuing government default on its bonds triggered a crisis of the banking system. The underlying cause of the crisis, however, was the failure to restructure bank assets. Banks had long accumulated bad loans and failed to account for them in their portfolios. Therefore, a banking crisis had been overdue for some time. It can be said that the banking system was bound for serious trouble even if the August 1998 crisis had not occurred. This contribution does not address the crisis itself, nor does it elaborate extensively on the role of the Agency for Restructuring of Credit Organisations (ARCO) or the government in restructuring (see: ‘Bank Restructuring: Developments in 1999’ by K. Eggenberger in this issue). Rather, this report concentrates on the restructuring that has taken place in the banking system, describes how restructuring was achieved, andidentifies the winners and losers in this process.