Head of Russian Deposit Insurance Agency about specifics of work and meetings with colleagues in Yerevan

12.10.2022 19:12
Head of Russian Deposit Insurance Agency about specifics of work and meetings with colleagues in Yerevan

YEREVAN, October 12. /ARKA/.  In an exclusive interview with ARKA news agency, director general of the Russian state corporation Deposit Insurance Agency (DIA) Andrei Melnikov speaks about the specifics of working with insurance cases, the importance of timely updates and the meeting of deposit insurance agencies of the Eurasian Economic Union (EEU) member states in Yerevan.

ARKA – Mr. Melnikov, tell us how the idea of harmonization of deposit insurance systems of the EEU member states arose?

Melnikov - Eurasian Economic Union (EEU) member states are working on the harmonization of all legislation. As part of this process, an expert group under the Eurasian Economic commission's Advisory Committee on Financial Market Issues was created in 2019. In fact, this was the start for the harmonization of legislation in the field of financial markets and banking regulation and harmonization of legislation in the field of bank deposit insurance is part of it.

ARKA - What are the main parameters for the unification of deposit insurance systems  in Armenia and Russia?

Melnikov - You have used the word "unification", we say "harmonization". If we imagine that the first is the elaboration of a single standard which everyone will strive for, the second is the choice of general principles, the so-called golden mean. In our work with EEU partners we follow the path of harmonization. As deposit insurers we should discuss the basic principles, on which the deposit insurance systems of our countries are based.

ARKA - Can you give some examples of the issues under discussion?

Melnikov - Let me name the main ones. What is an object of insurance? On what principle and how quickly we pay out compensation claims. What is the optimal amount of insurance coverage in terms of common interests of our countries? What are the rules for receiving insurance compensation claims and the order of their payment? In other words, all the main parameters that we have been working on for four years within the first stage of harmonization are related to the protection of depositors at the moment when an insured event occurs.

ARKA - Soon the working group will move on to the second stage of joint work. What questions will it consider?

Melnikov - We will have to agree upon approaches to the harmonization of the protection of bank customers after the revocation of licenses. These are issues related to  bank liquidation, prevention of insolvency, and financial rehabilitation.

ARKA - Are there disputes during discussions?

Melnikov - The discussion is going on in a professional and friendly format. We are jointly seeking solutions to all the questions. Talking specifically about Russia and Armenia, we have been maintaining friendly working relations with our Armenian colleagues for quite a long time, so it is not a problem to develop a consensus expert opinion. 

ARKA - Do you think Armenia is ready for such harmonization?

Melnikov- All EEU member-states have a rather high degree of readiness from the point of view of common principles of building deposit insurance systems.  Despite the differences in nuances, in general our systems are similar.

ARKA - What experience can Russia's and Armenia's deposit insurance agencies share?

Melnikov- The most valuable experience is about practical issues. As deposit insurers we should ensure payment of insurance money to banks with revoked licenses very quickly, without any technological disruptions. So that people do not even have time to feel any discomfort. This process can be organized in different ways.

Let's say our colleagues from Armenia have had no precedent of insurance payments. You and your financial market were lucky. That is why our colleagues concentrated on the stage of preparation of payments, first of all, digital identification of clients. This is the most important part of our work when an insured event occurs. This system should be fine-tuned in advance and work without fail. Armenia has its own unique preparatory experience.

Apart from insurance payments, the DIA deal also with bank liquidation and financial rehabilitation. For those organizations which haven't dealt with it or are ready to plunge into the matter for the sake of legislation development, we provide exhaustive information with our practical experience, and warn of the risks which should be taken into account. For a multifaceted exchange of experience, as well as preparation to do our job diligently, this is very important.     

ARKA - Do the terms of deposit insurance differ in Armenia and Russia? And if so, what is the difference?

Melnikov - Deposit insurance systems in the world are very similar. Everybody knows the phrase: no need to reinvent the wheel. I agree. But it never hurts to improve the details. Let me explain.

Let us say that in Armenia the differentiation in the amount of insurance payable depends on the currency of the deposit - national or foreign. It is a state policy aimed at encouraging savings in the national currency. Initially, the Russian deposit insurance system was built for equal protection of foreign currency and ruble savings. In the recent past in the Russian Federation the share of foreign currency savings was quite large - up to a quarter. This was a significant factor. Now it has fallen back to 1/10. And it is not that significant anymore.

But we have differentiation of insurance depending on the type of deposit. For example, there is insurance of 1 million 400 thousand rubles for standard bank deposits and accounts, and there is increased insurance that applies to savings for low-rise housing construction or special life situations. For example, someone sold an apartment, received money, but did not have time to actually dispose of it, and at that moment the bank's license was revoked. This is considered a special life situation. To avoid loss of large funds which people could save for most of their lives, an increased limit of 10 million rubles is applied. We also willingly share information about such subtleties with our colleagues. But in general, I repeat, our insurance systems agree on one thing - they are aimed at protecting depositor's interests, the systems have limits and strictly defined purpose.

ARKA - Speaking about the dialogue between Russia and Armenia on deposit insurance. You have already said that you find the quality of such dialog satisfactory and even positive.

Melnikov - Yes. Besides that we have known each other as colleagues for a long time, we have a long history of working contacts and exchange of practical experience with Hermine Harutyunyan, Director of Deposit Insurance  Fund of Armenia. That is why we treat each other with professional respect.

ARKA - So, the dialogue has been set up. All you need is to develop it.

Melnikov - Yes.

ARKA - Since 1994 our professional activity has been associated with promotion and creation of the deposit insurance system. You are one of the authors of the concept for establishing a Russian banking deposit insurance system, and one of the founders of the Agency for Restructuring Credit Organizations, which served as a base for establishing DIA. How has the quality of deposit insurance changed in Russia over these years?

Melnikov - In addition to the fact that we have gone a long way of applied work, we have paid 2 trillion rubles in insurance claims for almost 20 years of our professional activity! This is crazy money. Its recipients were 4.5 million Russians. Although we had to work under absolutely different stressful conditions, the system worked flawlessly. In terms of benefits for the banks' clients - the insurance increased 14 times over the years. We started with 100 thousand rubles and now it is 1 million 400 thousand rubles. Now we also insure funds of individual entrepreneurs and certain categories of small enterprises, and we are preparing to expand insurance coverage to certain categories of socially unprotected non-profit organizations. We also insure clients of non-state pension funds. We are going to take on some more new functions for different local financial markets.

ARKA - So you are building up a safety cushion?

Melnikov: This is a safety cushion to protect certain groups of society. The orbit of our work is occupied by socially oriented non-profit organizations that provide protection to disabled people and religious organizations that have a very important social function. The loss of 500-600 thousand rubles has a rather stressful impact on their activities. We started out as an ordinary payment system. After a while we became a liquidator of banks which left the market. The DIA not only pays insurance to clients of a bank with a revoked license, but also ensures consistent liquidation of this financial institution. When we started, the level of payments to creditors (clients who had a deposit in the bank with a revoked license that exceeded the insured amount) was about 5-7%. Now we pay them back much, much more. We have returned almost half of the funds. It is quite a high level. And more than 70 financial institutions have already gone through financial rehabilitation.

ARKA - So you ask your clients to trust banks?

Melnikov - Both the supervision and the government have seen that this instrument is important for financial market stability. It ensures customer confidence in the future, and this means that banking and financial sectors work steadily.

ARKA - A meeting of deposit insurance agencies was held in Yerevan as part of the EEU dialogue to exchange experiences. What are the results, have you reached an agreement?

Melnikov - It is good that the pandemic is over, and we can communicate offline. The effectiveness of this communication exponentially increases when you and your colleagues, looking into each other's eyes, start discussing something professionally. This time we touched on several important topics.  They concern the investment of deposit insurance funds. It is important for the society to see that the assets of the respective funds are invested transparently, without risks, with sufficiently high liquidity. It means that the public will have confidence that, at the right time, the agency will have the money in the right amount.  We also discussed legal protection of those who work in the deposit insurance system and a number of other issues. -0-


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