Will Bank Deposits Be Frozen: Risk Analysis and Forecasts
Amid ongoing economic and geopolitical pressures, the safety of bank deposits has become a critical concern for depositors worldwide. Insurance coverage of up to 1.4 million rubles, prudential norms, and restructuring mechanisms are designed to mitigate risks. This article provides a comprehensive analysis of the ways deposits can be frozen, the bail-in procedures, measures for protecting depositors, and scenarios for the situation's development by 2025.
1. Freezing Mechanisms and Moratoriums
1.1. Definition of a Deposit Moratorium
A moratorium is a temporary ban on withdrawal of deposits, imposed by the Central Bank or the government for up to 30 days. It is implemented to prevent panic and mass outflows of funds in case of a liquidity threat to the banking system.
1.2. Grounds for Imposing a Moratorium
The main triggers include a deposit outflow exceeding 15% of the total volume within a month, a decrease in LCR and NSFR ratios below 100%, and the identification of significant troubled loans. The Central Bank promptly makes a decision when stability is at risk.
1.3. Legal Aspects
The moratorium is established based on the Federal Laws of the Russian Federation "On Banks and Banking Activities" and "On the Central Bank of the Russian Federation." Depositors have the right to contest the measures in court, but access to their funds remains limited until the moratorium is lifted.
2. Banking Restructuring and Bail-In
2.1. Stages of Banking Restructuring
Restructuring includes:
- Appointment of a temporary administration;
- Restoration of financial condition (bail-in or government assistance);
- Return of the bank to commercial management.
2.2. Bail-In Mechanism
Bail-in allows for the conversion of unsecured liabilities (deposits exceeding 1.4 million rubles) into bank capital through write-offs and issuance of new shares or bonds. It reduces the burden on the budget but may affect large depositors.
2.3. Comparison with European Experience
In Europe, bail-in was applied to banks in Cyprus and Italy (2013-2014). Russia has a legislative framework for this mechanism, but it has yet to be activated due to regulators' cautious approach.
3. Deposit Insurance and Fund Protection
3.1. Insurance Compensation Limits
The Deposit Insurance Agency guarantees compensation of up to 1.4 million rubles for each depositor in a single bank. For amounts exceeding this limit, it is advisable to distribute funds across multiple credit institutions.
3.2. Compensation Payment Process
After a license is revoked, compensation is paid within 14 working days. The Agency covers 100% of the deposit amount within the limit. Additional funds are paid out during the bank's liquidation process, which may take years.
3.3. International Insurance Standards
In Germany, the insurance limit is €100,000; in the U.S., it is $250,000. The higher limits in Russia compared to emerging markets enhance confidence in the banking system.
4. Bank Liquidity and Deposit Outflows
4.1. Prudential Norms
The Central Bank sets a minimum LCR (Liquidity Coverage Ratio) ≥ 100% and NSFR (Net Stable Funding Ratio) ≥ 100%, as well as reserve requirements of 4% for corporate deposits. Violating these norms leads to restrictions on operations.
4.2. Stress Testing
Annual stress tests simulate an outflow of 20-30% of deposits; in 2024, 95% of systemically important banks passed the test with a result ≥ 100% on the LCR.
4.3. Depositor Panic and Real Threat
Mass withdrawals caused by rumors may lead to increased defaults. However, the Central Bank’s timely measures to provide liquidity have already averted similar crises in 2008, 2014, and 2020.
5. Regulatory Measures of the Bank of Russia
5.1. Strengthening Capital Requirements
The CAR (Capital Adequacy Ratio) has been raised to 10%, including countercyclical buffers. Large banks are additionally required to maintain a capital conservation buffer.
5.2. Reserve Norms
From July 2025, reserves on deposits from legal entities will increase to 4%, which reduces the speed of outflows but decreases profitability for banks.
5.3. Preventive Monitoring
The Central Bank publishes quarterly reports on the risks of the banking sector, including an analysis of the credit portfolio and liquidity, which assists depositors and investors.
6. Currency Restrictions
6.1. Currency Control
Restrictions on foreign currency transfers and mandatory sales of a portion of foreign currency earnings strengthen the ruble but block access to foreign currency deposits.
6.2. Consequences for Depositors
During a currency moratorium, transactions on foreign currency deposits are suspended, with banks directing reserves to maintain the exchange rate, temporarily complicating access to funds.
6.3. Alternative Approaches
Diversification: multi-currency accounts, dollar and euro bonds, and foreign ETFs can help to mitigate currency risks.
7. Historical Precedents and Cases
7.1. Restructuring in 2008
The restructuring of "Investbank" and "Rosbank" occurred without the use of bail-in; depositors received compensation from the Deposit Insurance Agency within limits of 1.2 million rubles.
7.2. 2014 Crisis
The restructuring of "Binbank" and "BM Bank" required recapitalization of 350 billion rubles; depositors received compensation within a month.
7.3. Pandemic in 2020
Panic led to an outflow of 5% of deposits, but the Central Bank quickly provided liquidity, preventing the freezing of deposits.
8. Forecasts and Development Scenarios
8.1. Base Scenario
Continuation of current Central Bank measures, absence of mass moratoriums and bail-ins; depositors are protected by insurance limits of up to 1.4 million rubles.
8.2. Pessimistic Scenario
A decline in oil prices below $60 per barrel, a sharp outflow of deposits, imposition of a moratorium for up to 30 days, and application of bail-in to amounts exceeding the limit.
8.3. Optimistic Scenario
Improvement in external conditions, influx of foreign capital, increase of insurance limits up to 2 million rubles, and accelerated digitalization of payments by the Agency.
9. Recommendations for Depositors
9.1. Diversification of Deposits
Place deposits in several banks to increase overall protection up to 2 × 1.4 million rubles and avoid bail-in risks for large sums.
9.2. Alternative Instruments
Russian government bonds (6-8% per annum), bank bonds, and structured notes with capital protection can serve as a supplement to deposits.
9.3. Monitoring and Information
Keep an eye on reports from the Central Bank and the Deposit Insurance Agency, publications from rating agencies, and react to signals regarding liquidity declines and new regulatory measures.
10. Conclusion
The freezing of bank deposits in 2025 remains an unlikely scenario, provided that prudential norms are strictly followed and a reliable deposit insurance system is in place. However, the risks associated with bail-in and currency restrictions necessitate that depositors diversify their assets, make informed choices regarding banks, and utilize additional capital protection tools.
