Banking crises in transition countries - theory and empirical evidence: the case of Russia

This paper assesses the causes and costs of the Russian banking crisis, the lending behavior of Russian banks, and it evaluates the authorities' response to the crisis. There appears to be evidence for conservative lending behavior on the part of Russian banks. The paper also searches for ways to promote financial development in Russia. It is argued that there may not be an alternative to systematic improvement of the legal and regulatory framework and its enforcement. It is also argued that several standard western prudential rules need to be adjusted for slow reforming transition countries with governments that have a solvency problem such as Russia. Russia's recently adopted banking restructuring program is an abandonment of the laissez faire policy response to the banking crisis but the weaknesses of this program become evident when comparing it to relatively successful bank restructuring programs pursued in other transition countries such as Poland.