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  • Print publication year: 1999
  • Online publication date: September 2009

4 - The rise and fall of the private banks


Yuzhno-Sakhalinsk, July 1998:

There it stood, gleaming reassuringly in the hotel lobby – an ATM cash machine, courtesy of a leading Russian bank. It was the first modern object I had seen on arriving on Sakhalin Island, eight time zones east of Moscow and one of most neglected places on earth. Yet with the discovery of oil, new money was starting to bring the first signs of change – a remodeled hotel, a new business center, and even a cellular telephone company, all within a stone's throw of Lenin's statue on Revolution Square. And an ATM machine.

Cautiously I stepped up and inserted my card. Amazingly, it beeped and whirred, and out popped a sheaf of fresh ruble notes. It worked! But not for long: within less than a month that Russian bank had collapsed, the cash machine stood cashless, and anyone on Sakhalin who wanted ruble notes had to fly to Moscow to get them.

Until the summer of 1998, banking was the headline story of Russia's nascent market economy. More than any other post-Soviet institution, the new private banks symbolized the vast transfer of wealth from state to private hands and the return of money to center stage in the Russian economy. The private banks were born in the late 1980s from the breakup of the Soviet banking monopoly, and they grew rich on the opportunities for trade and arbitrage that opened up as the Soviet state weakened.