ANDREI KOZLOV JOINED the Central Bank of Russia in March this year as its deputy chairman and is spearheading the drive to reform Russia's ailing banking sector. Euromoney met him last month to discuss the central bank's latest initiatives, including the controversial new deposit insurance scheme. Although this may bring stability to the banking system, the fear is that unless it is accompanied by tougher regulation it could create moral hazard: banks might be encouraged to take big risks confident that the fund will bail them out if they fail.
The World Bank and IMF have been asked by us many times in previous years for their opinion on the introduction of deposit insurance in Russia. They said that it was impossible to set up a deposit insurance scheme with big banks. They recommended that the banking system should be cleaned up first.
Until a year ago the central bank agreed, especially after the crisis when it was not clear what was happening. The system needed to be stabilized. At issue is not deposit insurance per se but a level playing field for all the banks in this market.
The question remains how to introduce deposit insurance in a weak banking system.