The ways of optimization of monetary and credit regulation in Russian Federation

The improvements of methods and forms of monetary regulation in Russian Federation means the optimization of activity of the Russian Central Bank and the banking system as a whole at the present stage, because it is the country's banking system that is responsible for the effective functioning of monetary regulation. At the beginning stage of central bank institution’s development, the functions of monetary policy and lender were combined within the framework of one institution. Having a monopoly right to issue of money and performing the role of government banker, the bank was responsible for the money supply and in a more or less explicit form for the stability of the national currency. On the other hand, being the largest credit institution, the bank had the highest index of reliability. As a result, when all other sources and channels were exhausted, the Central Bank remained the last one to which banks could ask for help as a lender.

Meanwhile, the support from the Central Bank to those who experienced difficulties was rather limited both by the terms of providing such assistance and by its scale.

Firstly, up to the beginning of this century, despite the specific roles and functions, the Central Bank, in fact, remained commercial institution and followed the principles of market competition and expediency. That’s why the idea itself of giving the bank a special right of controlling the activities and financial conditions of other commercial banks contradicted the principles of market competition and was not naturally widespread. As a result, the assistance, as a rule, was provided only to financially sustainable credit institutions.

Secondly, being a private enterprise the resources of the central bank that could be directed to support another banks were limited. That’s why central banks, in some cases undertaking rescue of a troubled bank, acted alone very rarely and more often tried to join the other banks organizing financial support and carrying out a general management [5, p. 176].

Thus, the stability of the banking system primarily relied on mechanisms of internal control. The lack of guaranteed support served as an incentive for a balanced and risky but reasonable policy [4, p. 126].

Despite the attempts of realizing the budget reform, the monetary regulation, implemented by the Russian Central Bank at the present stage, is costly and conservative. Mechanisms, able to implement a flexible reorientation of budget expenditures structure for the population preferences, may be unformed as the social sector reforms have been conducted in recent years.

We can state that the problems of monetary regulation in Russian Federation will not be able to ensure the effective implementation of internal stimulus of market economy development, they are not aimed on realization of the internal potential of economic growth, entrepreneurship and innovation [1, p. 121].

Therefore it is necessary to make systemic changes in the organization of the economic mechanism of management in order to provide a successful efficient modernization of the economy and its subsequent transition to the innovative model of methods and forms’ development in monetary regulation.

In our opinion in order to improve monetary regulation it is necessary to ensure control over the use of credit resources that are allocated in refinancing of the real sector of Russian economy. In addition it is necessary to concentrate operations with foreign currency and securities in specialized financial and credit institutions. In our view it would reduce the scale of financial sector activity of the economy and additionally would contribute to expand its orientation to the realization of needs of the economic real sector.

The important problem of the Central Bank in relations with commercial structures as an important aspect of monetary regulation should remain a supervision. Taking into account the adopted legislative acts, the Central Bank has only limited authority in this regard. Consolidated supervision was possible with banking groups, including headquarters and subsidiary credit institutions. All noncredit organizations disappeared from the view of the Bank of Russia. As a result, the Central Bank did not have effective measures to prevent the theft and dispersion of assets of troubled banks. The Bank of Russia is limited only by formal supervision of banking legislation compliance. [1. p. 122]

In order to solve the problems in the interaction of credit institutions with the Central Bank, it is necessary to continue the improvement of interbank multilateral clearing; in order to increase the liquidity of the banking system, it is necessary to continue the reduction of differentiated standards of mandatory reserves. Moreover it is necessary to keep providing loans to a range of Russia's major banks, for example, to Sberbank up to 2018.

Another problem of monetary policy in 2017 is the low activity of the Central Bank in the issue of restoring and restructuring of credit institutions. Such actions are often highly criticized both from the banking community and international financial institutions. Measures, applied to commercial banks, have been dictated and are dictating mostly by the task of maintaining the ruble exchange rate and driving out banks from the foreign exchange market (a consistent increase in reserve requirements, a restriction on the size of the open currency position). Anyway this aim was achieved in 2014-2016, but it was rather inefficiently. Almost nothing has been done to make investments more attractive in the real economy sector and to limit the capital outflow.

The lack of active actions by the government and the Central Bank in restructuring and restoring the banking system is explained on the one hand by a shortage of funds, and on the other hand probably by the fact that over the twenty years of development commercial banks have not become an effective mechanism that accumulates and redistributes financial flows and savings. [5, p. 180]

In connection with the threats in 2016-2017 to the crisis situation in Russian economy (sanctions), the current work of the Bank of Russia (together with international institutions) should be the creation of a system of indicators for the maturation of financial instability. The main indicators of the increase in financial instability can be a sharp increase in capital inflows; financial liberalization without proper strengthening of the financial supervision and regulation bodies; high degree of state participation in financial institutions; weak legal framework and shortcomings in the system of reporting.

The improvement of monetary regulation should allow the possibility of the Central Bank's reaction to temporary changes in the economic situation. Intermediate objectives are achieved in this case by special target points, by special ("discretional") indicators in the framework of special governmental economic measures (for example, targeting interest rates to stimulate economic development or their differentiation).

Formation of internal lending mechanisms to innovative economic growth and formation of domestic effective demand implies the following changes in the instruments of monetary regulation [2, p. 41]:

• 1.    To improve the refinancing system. In our opinion it is necessary to include different instruments of medium-term and long-term financing in this system. This will ensure the liquidity of credit institutions at the proper level. Besides this measure will ensure the purposeful allocation of financial resources, that are necessary for the implementation of significant social programs, which in this case can be implemented through a certain range of the largest banks of the Russian Federation.

• 2.    At the present stage it is necessary to implant a system of mandatory standards in order to improve and optimize the monetary regulation. This system reduces the risks of commercial banks using the system of economically recommended norms that limit the maximum amount of financial liabilities of commercial entities to non-resident banks. Moreover this measure will reduce the maximum amount of risk per bank creditor or depositor.

It should also be noted that an important area of optimization and modernization of the current refinancing system should be the creation of a unified refinancing mechanism for all commercial structures and a reduction in the requirements for the estate volume so that there is an opportunity to provide access to loans in small and medium-sized regional banks of real economic sector like in Dagestan Republic.

In our opinion, in order to improve and optimize the practice of monetary regulation it is necessary to implement some measures in the following main areas:

• •    to identify the risks accepted by the banks analyzing further development of the market situation and economic conditions of Russian Federation;

• •    to develop a system of early reacting to all external economic conditions of Russian Federation;

• •    to implement a differentiated approach to the surveillance regime taking into consideration the elements of significance and the risk levels;

• •    to realize supervisory measures to reduce the risk concentration;

• •    to develop a supervision on consolidated basis;

• •    to optimize interaction with the state regulation and control bodies on the information exchange on the foreign experience basis.

The directions of modern monetary and credit regulation improvement mentioned above should provide the necessary interaction for the transition to innovative development of specific objectives of monetary policy with the objectives of state economic policy, as outlined in the Concept of Long-Term Social and Economic Development of the Russian Federation for the period till 2020.