Financial Markets: Increasing Complexity, Maintaining Stability

3–5 July 2019, ST. PETERSBURG

    The Centre for Macroeconomic Analysis and Short-Term Forecasting (CMASF) has conducted a comparative analysis of the model of the Russian financial sector and models of financial sectors of other countries for the Bank of Russia as part of the macroeconomic research cycle that will be presented at the IFC.

    CMASF economists analysed specific aspects of the size and structure of the financial sectors of 63 countries over the period of 2004–2014 and identified four main models of the financial sector that are typical for upper-middle-income countries – “autonomous countries”, “balanced leaders”, “overheated leaders”, and “junior partners”. For Russia, as for most developing economies based on exports and raw commodities, the “autonomous” model of the financial sector is typical.

    In countries with this model, the financial market is less transparent, mostly banking-oriented, and distinguished by a strong degree of government intervention in the financial sector. The countries in this group feature weaker development in the financial sector. They are also more exposed to banking crises than countries belonging to other models.

    As the economy becomes diversified, prosperity grows, the quality of market institutions improves, and relations between domestic and foreign financial organizations develop, countries can move into clusters with a higher level of financial sector development. This transition is usually accompanied by the import of capital and expertise from abroad, the accumulation of external debt and closer integration with the financial sectors of the leading countries. At the same time, the level of development and stability in the financial sector increases.

    Quote: conclusion about Russia’s prospects of transitioning to a more developed model

    CMASF experts have concluded that in the medium term, the priorities for the development of the domestic financial sector should be based on the goal of Russia taking over the leading positions within its “own” cluster. It would be advisable to maintain competition in the banking sector in order to solve medium-term problems. Non-banking institutions are of paramount importance when selecting the priorities for the development of the Russian financial sector.

    “Countries tend to transit to more developed clusters. A fundamental condition for such a transition is the continued processes of economic diversification and increased level of prosperity. The policy of regulators can help accelerate the transition process. In view of this the focus in the long-term should be placed on the development of the independent pension funds in conjunction with the development of long-term consumer lending, the development of life insurance, and a moderate expansion in the presence of foreign banks and foreign portfolio investors in the national financial sector as well as on national financial markets” – CMASF said in a statement.