Legal mechanisms for financial recovery of credit institutions : history of development

The emergence of mechanisms for the financial rehabilitation of credit institutions in the Russian Federation took place in a rather difficult situation that required a serious change in legal thinking and ideology. Up to the end of the 90s of the XX century. dominant in matters of financial recovery was the idea of ​​the inadmissibility of state intervention in private affairs of banks, the need for protective barriers to supervision measures, even if the owners of the bank

the leaders did not make any meaningful effort to save him. Due to the fact that there were not sufficient requirements for the founders, managers of the newly created bank, the quality of the funds contributed to the capital, the process of licensing banking activities was too simplistic, which led to the fact that many banks were created. A significant part of them also quickly closed. Since the revocation of the license was equal to the decision to liquidate the bank, the liquidation procedures were not actually carried out, hundreds of non-working banks remained in the status of a legal entity in the State Register of Credit Institutions.

The legislation of that time was attended by several mechanisms, which were further developed. First, the principle of the possibility of initiating a bankruptcy case of a credit institution only after the revocation of its banking license. While enshrined in the 1992 Law of the Russian Federation on Insolvency (Bankruptcy), this principle emphasized the priority of supervisory measures in relation to banks over judicial procedures. Secondly, it was allowed (although in fact only with the consent of the owners of the bank) the appointment of a temporary administration for managing a credit institution as a supervisory response measure.

In 1995, practical work began, aimed at improving the procedures and mechanisms for the financial rehabilitation of credit institutions and their bankruptcy procedures [1]which resulted in accepted – with great difficulty! – in 1999, the Federal Law “On the Insolvency (Bankruptcy) of Credit Institutions”. Within the framework of this law, the main legal mechanisms for preventing bankruptcy, either by the credit institution itself, its managers and founders (under the threat of being liable for property liability for debts), or by the Bank of Russia forcibly through the provisional administration mechanism for managing a credit institution with suspension of powers were secured governing bodies of the credit institution itself. Legally, the law enshrined the admissibility of public intervention in the management system of a private-legal organization, thereby restricting it – but in accordance with the constitutional legal principles defined by the norm of Part 3 of Art. 55 of the Constitution of the Russian Federation – the right to property. Besides,

The 1998 crisis, which caused the disruption of the banking and payment systems and the massive closure of banks, demanded other, non-standard

for that time making. To regulate the procedures for the rehabilitation of banks that are relevant to the financial system of the country as a whole and individual regions, the Federal Law of July 8, 1999 No. 144-ФЗ “On Restructuring Credit Organizations” was adopted [2]. The law provided for the creation of a special body for the resolution of the insolvency of credit institutions – the Agency for Restructuring Credit Organizations, which acts as a state corporation (the first in this legal form). In addition, the Act actually drew attention to the fact that special procedures should be resorted primarily to those banks whose bankruptcy can have the most negative significance for the entire economy. Within the framework of the Act, the actual “bail-in” mechanism was tested, which implied compulsory conclusion of a settlement agreement, providing for the write-off of a part of the creditors’ funds and the postponement (installment) of the fulfillment of obligations to them. The law also contained a mechanism for forcibly writing off a bank’s capital in the event

The next most important decision was the granting of authority to the Deposit Insurance Agency, which arose on the basis of the Agency for Restructuring Credit Organizations (ARCO) after the adoption of the Law on the Insurance of Deposits of Individuals in Banks of the Russian Federation in 2003, the authority to conduct competitive management in credit organizations that were recognized insolvent . Introduction to the practice of insolvency of the so-called “corporate manager” has increased the responsibility for the results of insolvency procedures, to make them more transparent and, as a consequence, to increase the amount of payments to creditors. Taking into account the fact that the requirements of a significant part of investors began to be covered by the insurance of the Deposit Insurance Agency, these mechanisms allowed stabilizing bank bankruptcy procedures.

The need to solve it fully arose during the 2008–2009 crisis. Then several measures were taken, such as financial, administrative and administrative measures, aimed at ensuring the stability of the banking system:

  • 1) The Bank of Russia in accordance with the amendments to Art. 46 of the Law on the Bank of Russia began issuing loans to banks without collateral, thereby maintaining the liquidity of the banking system;
  • 2) The Bank of Russia, in accordance with Federal Law of October 13, 2008 No. 173-FZ “On Additional Measures to Support the Financial System of the Russian Federation”, began to provide banks with guarantees that “worked” in the event that another bank, the debtor of the first the interbank loan revoked the license to conduct banking operations. Thus, the interbank lending market was supported;
  • 3) the state provided funds through Vnesheconombank, which were placed in a number of banks as subordinated loans.

Also, a subordinated loan was provided by the Bank of Russia to Sberbank of Russia;

4) the Federal Law of October 27, 2008 No. 175-FZ “On Additional Measures to Strengthen the Stability of the Banking System until December 31, 2014” was adopted, which brought back the practice of implementing measures for financial recovery of the most economically important banks under control of the Deposit Insurance Agency.

Under Law No. 175-FZ, the accumulated experience of preventing bank insolvency was involved. In accordance with this law, two authorities began to have the authority to resolve the insolvency of credit institutions: the Bank of Russia and the Deposit Insurance Agency, the competence of each of them was clearly outlined. The Bank of Russia initiated the “launching” of the relevant procedures, exercised general control and in some cases provided funds for these procedures. The Deposit Insurance Agency directly managed the procedures – independently or through an investing organization.

The measures for financial recovery provided for by the said Law were taken either in the mode of agreement with the persons controlling the bank or in the compulsory mode. In the first case, it was about reaching an agreement in accordance with which shares were transferred to the Deposit Insurance Agency in the amount of at least 75% + + 1 share. At the same time, bank owners assisted in improving the quality of the bank’s assets and their sale. In some circumstances, the owners of bikes could qualify for the repurchase of shares of the bank after its rehabilitation. The second mechanism – “expropriation” – was associated with the removal of the management and owners of the bank through the procedure of appointing a temporary administration for managing a credit institution and the subsequent write-off of bank capital (up to the value of 1 ruble if the capital was negative). Within the framework of this law, the mechanism of partial sale of assets and liabilities of the bank was also tested. Taking into account the fact that from a legal point of view, the law was of an extraordinary nature, the use of its individual mechanisms was accompanied by the suspension of the norms of corporate and banking legislation, in particular, related to ensuring the rights of shareholders, control over major acquisitions, etc.

The effectiveness of the application of this law led to the fact that in 2013 it was decided to consolidate the norms of this law, the Bank Bankruptcy Law and a number of other acts within the framework of the General Bankruptcy Law. As a result, at present all relations connected with the prevention of insolvency of credit institutions are governed by the provisions of §4.1 of Chapter IX of the Bankruptcy Law [3] . In accordance with the norms of the Bankruptcy Law, bank bankruptcy settlement procedures are implemented:

  • 1) “in general mode”, without the involvement of the Deposit Insurance Agency;
  • 2) with the participation of the Deposit Insurance Agency.