During intense periods, similar to the receding year of 2013, the role of feedback between the mega-regulator of the financial market as represented by the Bank of Russia and the banking community becomes greater, as well as the role of culture of interactions between different participants of the system. Garegin Tosunyan, the president of the Russian Banks Association (RBA), correspondent member of the Russian Academy of Sciences, dwells upon the activities of RBA for improvement of such feedback in 2013 and upon the plans for 2014.

NBJ: Garegin Ashotovich, the year of 2013 has turned out to be very complicated and saturated for the Russian banking system: there appeared the first mega-regulator in the history of Russia, the Central Bank's management was replaced, the year's end was marked by a revocation of licences from some quite large and market-evident banks. What are the major events and trends of the receding year for you?

G. TOSUNYAN: As far as I am concerned, the main thing that despite the replacement of the Central Bank's management, they managed to retain and improve those traditions that have been introduced for 12 previous years. It is absolutely important that the dialogue between the mega-regulator and the banking community has not become a monologue, where a party sets its position and the other one is silently accepting it as the guideline to follow. From this point of view, a very showing is the meeting between the Central Bank's management and executives of 30 regional banking associations that took place on December 18, 2013. The meeting was presided by Elvira Nabiullina and turned out to be quite substantial: it was attended by all of her deputies, as well as the heads of the leading departments of the Central Bank.

The form of that dialogue was of essence too: at first our colleagues (representatives of the regional bank associations) were offered to set forth their opinions, to share the data from the battlefields. This format of the meeting was perceived alright, and we were extremely encouraged due to the sincere interest as shown by the executives of the mega-regulator listening to the news from the battlefields and opinions of the dialogue makers.

I must admit that Elvira Nabiullina has a sharp position as for the mat­ter which way we should clear up the market against the bad faith participants, nevertheless she, as the meeting showed, is ready to hear the statements of opponents. For us it was crucially important to fasten that dialogue as an integral part of regulation and supervision, because hardly any supervision will be efficient without a feedback.

NBJ: Nevertheless, we are beginning to think that the Central Bank intends to continue rigid and rough actions in matters of licence revocations. Were there any attempts to tell the mega-regulator's management about the idea that perhaps one should act under the "less is more" principle in such situations?

G. TOSUNYAN: Yes, there were. We made a special focus on the necessity to feel the sense of harmony. The market can and shall be cleared up, the entities that are actually "dropped off" under the burden of insolvable problems shall be removed therefrom. It is nothing more than reality: there are the banks of that kind, although there can be more than some dozens of them, but not hundreds as pronounced by some hot shots wishing to entice customers of competitors. All the same, the unsustainable participants shall be removed from the market, standing on grounds of harmony thereat, in terms of the effects that can be exerted by too violent actions onto the stability of the system as a whole.

I have already mentioned about the need for feedback in order to increase the supervision's efficiency. The feedback and availability of such format as the continuous dialogue between the banking community and the mega-regulator, are the stabilizers making it possible to prevent both too weak regulation, and overreach at supervision arrangements. Similarly to stabilizers that perform their functions at transmission of radio signals: if the signal is too weak, the stabilizer will amplify it, if the signal is too strong, the stabilizer will smooth it. In both the cases, the signal's quality is not infringed. The same can be said about the banking market: the coordinated, constructive and duly communicated opinion of the banking community is able to take functions of such stabilizer.

NBJ: Provided that the other side of the dialogue is ready to perceive the above coordinated, constructive and duly communicated opinion.

G. TOSUNYAN: Definitely. Now I would like to express my deepest respect to the ex-CEO of the Bank of Russia, Sergei Mikhailovich Ignatiev. He made a lot of things for adjusting a dialogue between the market regulator and the banking community, founded the culture of communication, whereby the major focus is made on intelligence, civility and ability to hear. To say the truth, at his times the Central Bank's feedback was somewhat restrained: sometimes we had to guess the opinion of the regulator on one issue or another. Elvira Nabiullina, through her energetic and concerned behaviour, made an additional impulse to that dialogue, in the meanwhile having preserved the intelligence, civility and openness.

NBJ: What is the practical idea of such new impulse?

G. TOSUNYAN: It is a quicker response by the regulator's management to the suggestions or questions of the banking community. Let me give you a particular case: a number of monoliner-banks at the consumer lending markets requested for the Association's assistance on arrangement of a meeting with the Central Bank's tops. I brought their request letter signed by several banks to the chairman of the Bank of Russia, and as soon as on the next day the meeting was appointed, alongside according to the suggestion of E. Nabiullina, more attendants from the lending organizations were permitted to come. It is extremely vital that resulting from the above event with the top managers of the monoliner-banks, the special work group was formed. It testifies to the fact that the new CEO of the Central Bank is interested in contacts with the banking community, and not just in holding of meetings with these or those bankers, but in a continuous dialogue.

NBJ: It is absolutely perfect that you have a dialogue with the top management of the Central Bank. But recently there have been many complaints that the Bank of Russia' regional departments somewhat cross the line, while carrying out their supervisory functions. Is there a hope that availability of feedback might act as a stabilizer for this purpose?

G. TOSUNYAN: Certainly, everything can happen. Sometimes people brought up under the impact of the so-called "Alekseev syndrome" prefer acting due to the rule "to be on the safe side we should make it tougher". As a result there are paradoxical situations, when the Bank of Russia's central body pronounces and acts one way, and the regional authorities perform the supervisory arrangements in another way, i.e. different by nature and scope. However, subject to the above situation, the feedback becomes so vital as never: we have an opportunity to let the Central Bank's tops know about such nonconformities. Already by now, we take the steps to repair the supervisory practice on sites, in order to make it devoid of overreaching that, as I have already told you, is on the one hand explained by the wish to "please" the new managers of the regulator, and on the other hand - by the rush to eliminate rebukes for too loyal attitude towards to the entities under supervision.

NBJ: Yet, it is worth admitting that it is not always easy for the heads of the regional departments to find their due place under the present day situation. The Bank of Russia has not acquired the right yet to make the reasoned assertion, accordingly, the Central Bank, when making supervisory or regulatory decisions, has to be guided only by formal criteria.

G. TOSUNYAN: As for me, I support the vesting a right for the reasoned assertion to the Central Bank, because the absence of such right often leads to paradoxical situations. An exemplary case for the above is the fight against dubious transactions that is conducted by the market's regulator nowadays. In the letter of the Bank of Russia No. 172 no criteria are set forth as for the specification of dubious transactions. So how shall the banks differ them from absolutely usual transactions that they make on a daily basis?

NBJ: Where is the relevance between the aforesaid and the Central Bank's having no right to make the reasoned assertions?

G. TOSUNYAN: The relevance is quite evident. The Bank of Russia is likely to accept the adoption of such guidelines in order to be able to lodge formal claims against the bank, without disclosing the reasons for claiming against it in full amount. In theoretic-judicial essence, it is rather a vulnerable way of carrying out the supervision. Therefore I am an adept of entitling the Bank of Russia to make the reasoned assertion and at the same time to impose the liability for the resolutions as vital for the bank.

NBJ: The responsibility matter, subject to what you have told us about the "Alekseev syndrome", is probably the most acute.

G. TOSUNYAN: Definitely, but where we have the reasoned assertions, there should be the responsibility of the regulator for making the same. Let's suppose that the Central Bank arrives at the conclusion, based on the totality of criteria: the bank performs a large amount of dubious transactions, thereby causing a negative effect on its stability. It is fairly well if its resolution in that case is correct, but if there is a mistake in it and so the sustainable bank might be under the pre-bankruptcy condition as caused by imposition of restrictions on transactions and penalties: who will be responsible for such a mistake?

The reasoned assertions and responsibility for them are designated to play the said role of a stabilizer similarly to the feed­back. Provided that you as the regulator's representative let the connivance, you will be punished, in the meantime that you over-supervise, not only the stability of a particular bank, but also, if the circumstances allow for that purpose, the stability of the banking system as a whole will be questioned.

NBJ: You have mentioned the "Alekseev syndrome" more than once. It is a wonder, but that syndrome has been affecting the activities of the regulator's representatives for 15 years, and from the look of it that syndrome is not going to be slowed down.

G. TOSUNYAN: We are approaching a very interesting theoretic issue: presumption of innocence. We must trust both the Bank of Russia's top management and middle ranking managers, we should believe that they are acting subject to the positive intentions, securing and protecting the interests of the banking system as a whole. On the other hand, we must impose the liability on them not only for an untimely revocation of the licence from one bank or another, but for the fact that some excessive supervisory arrangements led to an outflow of funds from the banks and panics in the society. The same innocence presumption principle has to be spread over the bank entity's top executives. If we know that a doubtful reputation top manager changes a bank after bank, and every bank he was employed in has a trace of dubious transactions, it is one thing. However, if we see the persons with a long-term unstained reputation, who paid lots of years to the responsible offices, isn't it a valid reason to trust them?

NBJ: The prior honest work is not always a guarantee that the person does not make reprehensible actions here and now.

G. TOSUNYAN: You see, you are addicted to quite another kind of principle - the one of presumption of guilt. And I am completely sure that if we follow the said principle we will be caught in a mousetrap. Let us recall the history of our country: even at the prevailing and predominating role of the Communist Party there was quite a good tradition, according to which if the person had an unstained party biography, he would have a specific reputation and trust with the society and ambience. How could anyone have distrust against a person who is the member of the Communist Party and has not been under penalties or reproofs?

NBJ: Still a boundless confidence shall not be equalized to indulgence against any wrongdoings.

G. TOSUNYAN: You are right, but currently we are having quite an opposite overreach: the bank's head may have an unstained reputation, and the bank being guided by him may be developing steadily for a long time. However, as soon as the alleged or actual problems emerge, the senior executive and the lending entity might be included into the list of the accused and impose penalties against them, which are likely to become a real trouble for the bank, in their turn. I believe that it is a very serious problem: we have faced the deficiency of confidence in and respect to each other.

In this context, the actions of some CEOs of the banks give rise to grand anxiety, who for the sake of their ambitions dare to make declarations stating that there are only 50 good position entities in the market, and all the others are the ragtag. Moreover, the above-mentioned fifty have some banks standing in the line to bankruptcy. Frankly speaking, I wonder that the market participants include those who are not shy at all to provide open manifestations of disrespect to their colleagues, people that they have been working with for dozens of years!

NBJ: Perhaps at this point we should mention that such statements are unhealthy for those who live outside the banking community. People tend to get into panic, take out the deposits from the banks that are not in the TOP-50 and TOP-100 by amount of assets.

G. TOSUNYAN: You are absolutely right, such a behaviour causes not only emotional, but purely economic consequences, alongside they may be negative not only for small- and medium-sized banking entities, but for those whom we usually call the market leaders. Panics and rushes of customers might spoil more than one bank, by the way the declarations of the above nature draw negative impact on the reputation of our market, and the economy, and the state as well. It is no wonder that after such declarations we start to be cauterized by international institutions and the foreign investors cut down the contributions to the economy.

NBJ: Moreover, such statements in theory may lead the impairment of the international ratings of Russia.

G. TOSUNYAN: Sure. And what you said will strike down the welfare of our largest banks that are actively borrowing monies from foreign capital market. They might pay their cash for such non-pondered statements, which as I have already empha­sized could only manifest the low level of culture and education of some participants in the market and nothing else.

NBJ: Generally speaking it is hard to imagine that the heads of the leading American banks give such a scornful opinion on some thousands of the lending organizations that operate in the USA.

G. TOSUNYAN: I guess it is beyond the probable, as they think it inappropriate to spoil the reputation of the country, reputation of the managerial body by the declaration of such nature. Who will give respect to us if we don't respect ourselves? By no means I am calling to connive every kind of violations, I do not think it right to leave the "dropped off" banks in the market should we clearly see the impossibility of rehabilitation thereof. Alongside I am absolutely against the sweeping condemnation on the entire banking system of ours.

NBJ: Speaking about the prospects for 2014, what do you expect?

G. TOSUNYAN: In my opinion, if we make the accurate clearing up of the market and we are capable of living through the present day hard period, we may create all the prerequisites for a qualitative growth of the banking sector. Naturally, for this purpose we will have to fight against the laundering activities, hand-to-hand passing of banks for fraudulent deeds, whereas the specified actions are hazardous and harmful in the first line to all the good faith participants of the market, who are generally interested in development of both their business and the system as a whole. However we have to understand that the most precise work shall be performed: fighting against trespassers and contrivers shall not cause prejudices to transparent and law-abiding banks.

I have got all the grounds to suppose that the Central Bank's management understands the above ideas, so for sure I am confident in the statements of the bank's top managers saying that they do not set the goal of revocation as many licences as they can and to reduce the number of lending organizations to a some minimum. On the contrary, they are committed to perform the most precise work providing for the use of diverse tools, including the rehabilitations, sending of the Central Bank's authorized officers to the banks, introduction of temporary receivers, etc., certainly if such tools are essential. The licence's revocation must be deemed as the final supervisory arrangement, similarly to the treatment of the capital punishment within the bounds of the Criminal Code as the upmost measure for social security. The "yellow lights" testifying to presence of problems with this or that bank shall be switched on much earlier - as soon as you see the first unfavourable symptoms.

NBJ: Nevertheless if we take a look at the statistics, the Central Bank as it seems to us prefers the named exclusive arrangement rather than the rehabilitation.

G. TOSUNYAN: Actually it is so, unfortunately. But perhaps it can be explained by the fact that indeed there were a couple of bank at the market that had been so deeply sunk in their troubles that their normal activity could not be resumed. At the beginning of our conversation I have told you that there are only few of them. And when the "yellow light" is switched on against some participants, we might apply the steps far from those radical supervisory measures, for example, the replacement of CEOs, imposition of criminal punishments upon them, if their offenses have been proven. What is that to the bank, when particular people were caught stealing? The bank is under the auspices of the Central Bank, the regulator issued the license to it in due time, so why does it have to call it back only because of the mistake on approval of the managers in that lending entity? That problem can be removed and cured without recoursing to the capital punishment in the form of the licence's revocation.

NBJ: So you support that idea that the Bank of Russia must use other effective tools, including the rehabilitation, more actively, don't you?

G. TOSUNYAN: To my mind, the rehabilitation means a good tool, although definitely it shall also be modified, having applied other, smoother measures in advance.

NBJ: But the use thereof is often rejected because the rehabilitating arrangements in respect to one asset or another are estimated as the too much financially expensive ones.

G. TOSUNYAN: You know the arrangements on repairing the roads are also highly expensive. At this point one should always raise a question: if we refuse from restoring, would not we suffer greater losses as the cars would go breaking and people would be injured? The same thing is with the banks: in some cases, and we had an unlucky chance to get it to know, revocations of licences made very severe negative consequences. To apply this tool in a more diversified way is a powerful argument. If the bank is normally operating organization, invaded by a group of people aimed at making of dubious operations, what is the reason to get the bank out from the market? Isn't it easier, both from the financial and any other point of view, to "root up" that group of people, at the same time retaining the bank as a viable institution?

NBJ: As far as I understand one of the goals that the Russian Banks Association has set for 2014 is to send this message to the regulator, isn't it?

G. TOSUNYAN: Already now we are sending this message as the said feedback format with the regulator. We support the idea that a cleared up, efficient, diversified banking system, bearing minimal risks will work in our country. It is especially important now when the Russian economy faces multiple problems and its growth rates are slowing down. It is necessary to be aware of the fact that particularly the banking system can become a source and a driver of renewable economic growth. Being the banking association we are ready to make everything we can to let this statement be understood by the public power authorities and our society. I am sure that together with colleagues, active participants of the banking market, we will be able to do it!