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The February 2024 issue analysed the draft law on addressing the situation of banks and reorganising them, due before the caretaker cabinet that month, and the ruling of the State Council annulling a May 2022 cabinet decision to cancel a large part of the central bank's foreign currency obligations to banks. The authors argued that the ruling undermined the foundations of the government's plan and raised questions over the agreement signed with the IMF.
The issue judged the bill seriously flawed: it exempted the state from obligations to the central bank and the central bank from obligations to banks, ignored the recovery of excessive interest and financial engineering gains and funds transferred abroad after October 2019, split deposits at $100,000 in a manner the authors considered unfair, and left central bank governance unreformed. In their view, it shifted the burden of recovery onto depositors.
The authors proposed that reform focus on returning depositors' money, recapitalising banks to international standards and restructuring the central bank and its satellite bodies, and reviewed alternative mechanisms including perpetual bonds issued directly to depositors and concessions rather than outright sales of state assets.
Key findings
- The 2022 government plan had included writing off $60 billion of banks' hard currency deposits at the central bank, which the State Council deemed unconstitutional.
- Under the draft, deductions reached 64% for non-eligible deposits, 80–90% on conversion to bank shares and 85% on conversion to bonds, with repayment over 15 to 30 years.
- The authors proposed shortening the zero-coupon bonds from 30 to 20 years, raising the value received at issuance from 15% to 34.5%.
- Public debt exceeded $96 billion at the time, and around 3 million depositors had placed their life savings with banks.
- A new restructuring authority chaired by the central bank governor would decide on restructuring or liquidating banks, a structure the authors criticised as perpetuating concentrated power.
Archive: written in Feb 2024; figures and assessments reflect conditions at the time of writing.Summary of the paper; the full analysis is in the PDF.