Staff Writer
Columbus CEO

c.2013 New York Times News Service

MOSCOW — Russia’s central bank Wednesday revoked the license of a midsize Russian bank, Master Bank, and accused its management of siphoning off assets in insider deals, in one of the larger bank failures here in recent years.

The license revocation was sure to draw additional scrutiny for touching on the problem of high-level cronyism in the Russian economy. Igor Putin, a cousin of President Vladimir V. Putin, was a former vice president of Master Bank and serves on its board of directors.

The central bank governor, Elvira S. Nabiullina, said in testimony to Parliament on Wednesday that she had revoked the license for “dubious operations,” including providing loans to related parties and for falsifying accounts. A deputy central bank director, in interviews with Russian and Western news outlets, elaborated that the bank’s capital was depleted because it had illegally provided loans to its majority shareholder and others in a clique of insider businessmen.

The bank would require a bailout of 30 billion rubles (roughly $910 million) from Russia’s deposit insurance program, a state news agency reported. It would be the largest bailout under the program since it was founded in 2004, although under other programs, the Russian Central Bank has offered larger bailouts. In 2011, it provided 295 billion rubles to shore up the finances of the Bank of Moscow.

Police officers searched the bank’s headquarters Wednesday as lines of worried depositors formed outside branches.

Nabiullina told Parliament that the bank’s capital had fallen at least 2 billion rubles below the level required to operate.

“We were forced to take this extreme measure,” she said.

Although Master Bank was only the 41st-largest bank in Russia, its profile in the consumer banking market was higher than the ranking would suggest. The bank had said it possessed the third-largest number of ATMs in the country. By midday, some transactions, including all ATM withdrawals, were halted.

Russian bank failures have been a searing and politically charged problem of the post-communist period. Widespread bank failures in an economic crisis in 1998 brought demands for greater order in Russia, easing the path to power of Putin, a former KGB agent.

It was unclear how directly Putin’s cousin was involved in Master Bank’s daily business. Igor Putin has served on the boards and in the executive suites of several companies. Although the governor, Nabiullina, was appointed by Vladimir Putin, she has used her first months on the job to try to emphasize the central bank’s independence by resisting pressure to lower interest rates, something the regulatory action Wednesday would seem to underscore.

Master Bank is majority-owned by a Russian businessman, Boris Bulochnik, who also served as chairman of the board, the news portal reported.


Problems in second-tier Russian banks are common. Russia has more than 900 banks, although many are barely visible and operate as so-called pocket banks of wealthy businessmen or large companies, mostly handling operations with these client-owners. Banking analysts say the large number of small banks with tiny pools of customers raises grave concerns about money laundering.

Nabiullina’s predecessor at the central bank, Sergei Ignatyev, said in a speech in February before stepping down that wide-scale money laundering plagued the Russian banking system.

The failure of Master Bank touched a delicate nerve of Russian business. Over the nearly 14 years that Putin has ruled Russia as president or prime minister, a close circle of acquaintances, relatives, associates and colleagues from the security services have grown fabulously wealthy. Igor Putin’s daughter, Vera Putin, has also served as director of a Russian bank, Ganzakombank.

Critics have said that the president’s relatives and associates in business are evidence of the deeply entrenched corruption that flourished during the oil boom. Vladimir Putin has repeatedly denied any involvement in aiding the business careers of associates or relatives.