The Drivers of Institutional Change in a Post-Socialist Economy: the Case of Deposit Insurance Introduction in Russia

Abstract

The case of deposit insurance introduction in Russia may suggest that institutional change in post-socialist economies was partly driven by subjective factors, and the choice of imported institutions was rather random. The circumstances under which explicit deposit insurance emerged in Russia might explain its subsequent (mal-)functioning and social costs. Material and institutional preconditions were missing at the time the topic of deposit guarantee came up in the parliament. The key actors (large banks controlling most household deposits and their depositors) did not demand hard a formal scheme of deposit protection. The advantage of an explicit protection scheme over the existing implicit one was unclear because of the prevalence of state-owned banks. I suggest that the introduction of deposit insurance was driven by a combination of factors such as: genuine good intentions of its proponents; demonstration effect of western experiences; the desire to disrupt the monopoly of Sberbank and boost the competitiveness of privately-owned commercial banks, probably stemming from ideological bias in favor of private ownership; and, last but not least, search for a new field of activity for deposit insurance initiators themselves. Despite its random selection, the institution of deposit guarantee fit well in the Russian setup because it was consistent with the long tradition of state paternalism.