Commercial Banks’ Mandatory Regulations Set by the Bank of Russia as Factors in Revoking Licenses

All the Russian commercial banks, which have any types of license, whether basic or universal, must meet the mandatory standards set by the Bank of Russia. Otherwise they may face the risk of having their license revoked. The problem raised by the study relates to the question of whether it is possible for the Bank of Russia to strengthen its control over default factors in commercial banks through economic regulatory measures, such as monitoring compliance with banking regulations. The purpose of this work is to identify factors that influence the probability of license revocation for commercial banks in Russia during a period of relative stability in the banking system between 2016 and 2021. Special attention is paid to the reasons for the revocation of licenses and the analysis of factors related to compliance by commercial banks with basic standards of banking activity. The following methods were used: analysis of the reasons for the revocation of banking licenses, division of 244 banks that lost their licenses into two groups: those with license revoked for economic reasons, and those in connection with violations of legislation. A multinomial logistic regression was used to analyze the impact of banking regulations’ value on the probability of license revocation. The econometric analysis showed that factors influencing the license revocations of Russian commercial banks, including those belonging to both groups considered, vary significantly. Not all indicators related to regulations and the probability of license revocation proved to be significant in this sample. Lowering the capital adequacy ratio significantly increases the risk of license revocation due to economic reasons. An increase in the maximum value of large credit risk also increases the likelihood of license withdrawal, regardless of reason.

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