Establishment of an Independent Committee on Financial Stability Would be a More Efficient Measure

A draft law aimed at upgrading of regulation, control and supervision on the financial market has recently been submitted to the State Duma. The document provides for amendment of the RF Code of Administrative Violations as regards assignment to the Central Bank of the Russian Federation of authorities of the Federal Financial Markets Service in respect of imposition of administrative sanctions.

It is to be noted that after the 2008 crisis many countries started to develop a new format in respect of system risks. Development of certain Basel-III provisions and establishment in some countries of special authorities similar to the committee on financial stability, as well as mega-regulators are meant to solve the system-risk related problems.

However, in the research community there is no unambiguous position as regards efficiency of mega-regulators in individual economies. For example, a number of countries - New Zealand, Australia, Switzerland and the US strongly oppose establishment of mega-regulators. Undoubtedly, it is important to control financial risks as well as carry out monitoring of large banks and investment companies. However, so far there is no single comprehensive mechanism.

In case of Russia, there is a justified need to introduce control over system risks and transfer to mega-regulation. However, it is to be specified that "mega-regulation" does not suggest mandatory establishment of the mega-regulator. In the international experience, there are no successful examples of mega-regulators as regards system risks prevention judging by the fact that the 2008 crisis in the US and the 2010 crises in the euro area broke out quite unexpectedly.

At present, when discussing the issue of establishment of mega-regulators in Russia they speak about everything, but the mechanism of system risks monitoring. There is much debate on purely institutional issues: whether wages and salaries of FFMS officials are going to be raised and whether the record of the civil service work is to be counted in. It is undesirable to limit establishment of a mega-regulator to a transfer of FFMS official to the Central Bank of the Russian Federation. At present there are as many as 74,000 employees of the Central Bank of the Russian Federation and if that number is simply increased by another 2,000 employees the situation will not be much different.

In our view, the most effective way consists in establishment of the committee on financial stability which is independent of the Ministry of Finance and the Central Bank. Such proposals were put forward as early as 2010. At that time it was expected that the above authority would be accountable to the President of the Russian Federation.

А.L. Vedev, Director of the Structural Research Center

Monday, 10.06.2013