Increasing the insured portion of deposits will drive up savings

15 june 2016 | RIA Novosti

People will be more willing to save money if the Agency for the Insurance of Deposits were to increase the size of insured deposits, believes the Analytical Center expert Daniil Nametkin.

Daniil Nametkin
Daniil Nametkin
Department for Expert Analytics

 “If the size of private deposits that insurance coverage is provided for were to increase, people, naturally, would be more motivated to save money. Increasing the size of insured deposits to RUB 1.4 million in late 2014 was a key reason why the share of money that people put aside in the bank went up from 6.9% to 14.1% last year,” Mr. Nametkin told a RIA Novosti journalist.

According to the expert, several factors need to be taken into account when choosing the size of deposit that insurance is provided for. “If the limit on insurance payments is too high it can have a negative impact on consumption as people will prefer to put off major purchases and instead put money in the bank to avoid the ‘bondage of debt.’ In addition, if the insured amount of deposits were increased, it would put even more pressure on the Agency for the Insurance of Deposits, which is already under a lot of pressure as it is because of the Bank of Russia’s continued mopping up of the banking sector,” he added.

Mr. Nametkin noted that in the near future the board of directors of the Agency for the Insurance of Deposits can ask the Bank of Russia for a fourth loan since the summer of 2015 to replenish its funds. In total in 2015 the Agency for the Insurance of Deposits spent almost RUB 170 billion on insurance payments to depositors of major banks whose licenses were revoked (these were banks that were rated among the top 150 in terms of the amount of assets). Since early 2016 about 45 more banks have had their licenses revoked, including such major players as Vneshprombank and Interkommerz.

Insuring some of the money put on deposit by small and very small companies would also make sense, according to Mr. Nametkin, seeing how today it is small businesses that mostly work with medium-sized banks that are exposed to the highest risks. “If such medium-sized banks have their licenses revoked, entrepreneurs are often left with no money to carry on with their business and that can have a major ripple effect on the economy as a whole,” the expert explained.

Source: RIA Novosti