Size of public sector in the Russian banking industry - Статья

Size of public sector in the Russian banking industry E. Glushkova, A. Vernikov State University - Higher School of Economics This paper addresses state participation in the financial sector. We take the example of the Russian banking industry to suggest criteria for a more accurate definition of public sector boundaries and an assessment of the actual scale of state presence in the national banking market. In many emerging markets the key players in the banking industry are fully or partially controlled by the state. The state-banking phenomenon is believed to render national financial sector less efficient due to politically-motivated credit decisions and to hinder bank intermediation. In the case of Russia, analysis of state participation in the banking industry requires a more in-depth analysis with special regard to its institutional basis such as bank ownership control. An accurate re-definition of public sector boundaries is crucial for all kinds of further analysis, e.g. the impact of direct state presence on performance indicators and relative efficiency of banks and the nature of their activities. What is a state-owned bank?. (Literature review and the suggested new approach). In the recent years a number of research papers on state participation in the banking industry have been published. They shed light on various aspects of state-banking phenomenon such as the stimuli and reasons for state presence, relative efficiency of state-controlled banks as well as their impact on the development of financial intermediation and economic growth. La Porta, Lopez-de-Silanes and Shleifer (2002) define a state owned bank as a bank with state share (both direct and indirect - with state-owned enterprises acting as a stockholder) of above 50%, or 20% if the state is the largest known shareholder. The criterion of at least 50% of federal, regional and/or municipal ownership is followed by absolute majority of authors, e.g. [Barth, Caprio, Levine, 2002; EBRD, 2006]. Iannotta, Nocera and Sironi (2007) consider a bank as government-owned if either national or local government is its ultimate owner, i.e. a holder of more than 24,9% of the bank’s equity capital with no other single shareholder owning a larger share. (2000) regard a bank as state bank if government stake in its charter capital exceeds 50%. In Gazprombank, the third largest bank, the state-controlled Gazprom corporation acts as the largest shareholder directly and via affiliated companies, and the bank in turn controls several subsidiary banks that have their own subsidiaries. The same goes for the Russia’s second-largest bank, government-owned VTB. Hence, the existing structure of the national banking industry requires a thorough analysis of all layers of hierarchy. Vernikov (2007) tried to offer a more comprehensive approach to the assessment of state presence in Russian banking by putting forward the notion of «broad state» as bank stockholder or beneficiary, which included public authorities and state-owned enterprises at all levels, as well as prominent political figures.