Russian banking since the crisis of 1998

Banking is one of the most difficult areas in the transition process. In Russia most reforms were less smooth than in the formerly socialist countries of central Europe and creation of a financial sector met with weak regulations and an opportunistic and weak government. The financial crisis of 1998 was therefore not the result of unforeseeable external events but one of limitless recklessness. The paper describes the major problems in building up a banking sector before 1998 and identifies the major reasons for the crisis. Crisis management also turned out to be atypical. Instead of seizing the opportunity to carry out necessary reforms, in particular a regulatory overhaul, not much happened. Now nearly ten years after the reform, the banking system has strengthened thanks to a very pronounced macroeconomics boom based on favourable terms of trade. The major weaknesses survive however under the cover of strong growth of the economy.