It is Rather Difficult for an Average Depositor to Foresee a Bank License Withdrawal

The Deposit Insurance Agency (DIA) brought numerous lawsuits against customers (about 500 persons) who had taken their funds from banks shortly before those bank’s licenses were withdrawn. Depositors have already started to collect signatures to draw the public attention to the Agency’s activities.

According to the legislation, the DIA is in a position to dispute deals made by a bank within a month prior to the date of the license withdrawal.

It is worth mentioning that the number of customers with large deposits in a bankrupt bank is very small: a fraction of interest of all the depositors of Russian banks. One has the impression that depositors are generally financially literate.

A small number of depositors with deposits of over Rb 1.4m either have the insider information, or are prepared to run the risk for the sake of a higher interest rate.

Generally, it is rather difficult for an average depositor to foresee that the bank license may be withdrawn, say, in a week. It may be assumed that there are people who can follow carefully the bank’s reporting to understand that the bank is in a critical situation and it is time to withdraw their funds by any possible means.

However, it is believed that in most cases there is an insider information factor when an individual who maintained a large deposit with the bank had contacts with the Bank’s Board. So, an action should be brought not only against the depositor, but also against the bank, which let the insider information leak. However, it is hard to prove it.

Mikhail Khromov, Head of the Financial Studies Department