The current failure of Bank Ukrayina, like former less spectacular ones, highlights the fact that in Ukraine to bank on something does not at all mean that you can depend on it, as the English idiom implies. Here caveat emptor , let the buyer (in this case the depositor) beware, seems much more to the point. For if they allow Ukrayina to fail, it is really equivalent to the state reneging on its own skullduggery.
The issue is not that the bank made bad loans that it knew in advance would never be paid back. The issue is that according to official statements at least 30% (and probably far more) of those loans were made not of the bank’s free will but as the result of official instructions. A close relative of my wife’s, who used to be in banking here, once told me about getting calls from high officials ordering him to loan so much to so-and-so and that resisting such “friendly advice” was like fighting not city hall but a much higher “instance.”
Bank Ukrayina has long had the reputation of being one of two banks more or less under official control and protection, in return for which they got special favors that put them far ahead of the competition. Note the fact that the authorities are not saying who or what enterprises took out the bad loans that sunk this once mighty rock of the nation’s financial system. Could it be that such people and their scams are powerful enough to keep their names out of the public eye whenever they need to? Could the NBU’s earlier use of this bank to channel public funds into private pockets (which is, after all, what such loans are all about) have really originated with the NBU or somewhere else in Ukraine’s political firmament? In face of the opacity that surrounds all such questions here, one can only surmise.
The collapse of one of Ukraine’s largest banks also highlights the need to look into how other countries regulate banking. This is important, because bank deposits provide the capital for loans to finance private economic development, and if people do not trust the banks, their money remains either under the mattress and out of circulation or in the shadow economy with all the wonderful consequences this implies. Since 1933 the US government has insured all bank deposits up to $10,000 and restricts the kinds of investments banks can make in order to minimize its own risk of paying for bank failures. When President Reagan decided to deregulate the savings and loan associations, a number of those special housing-oriented banks went into ventures that failed and the American taxpayers wound up paying billions. American learned something from this mistake. Will Ukraine learn anything from one that appears not entirely dissimilar?
