Will Bank Deposits Be Frozen: Risk Analysis and Forecasts
In the context of ongoing economic and geopolitical pressures, the security of bank deposits has become a critical issue for depositors worldwide. Insurance coverage up to 1.4 million roubles, prudential standards, and resolution mechanisms are designed to mitigate risks. This article provides a comprehensive analysis of deposit freeze mechanisms, bail-in procedures, measures to protect depositors, and projections for the situation in 2025.
1. Freezing Mechanisms and Moratoriums
1.1. Understanding the Moratorium on Deposits
A moratorium is a temporary ban on the withdrawal of deposits, imposed by the Central Bank or the government for a period of up to 30 days. It is applied to prevent panic and a mass outflow of funds in the face of threats to the liquidity of the banking system.
1.2. Grounds for Imposing a Moratorium
The main triggers include: a deposit outflow exceeding 15% of the total volume within a month, a decline in LCR and NSFR ratios below 100%, and the identification of large problematic loans. The Central Bank makes swift decisions in response to threats to stability.
1.3. Legal Aspects
A moratorium is established based on Russian laws "On Banks and Banking Activities" and "On the Central Bank of the Russian Federation". Depositors have the right to challenge the measures in court, but access to funds remains restricted until the moratorium is lifted.
2. Bank Resolution and Bail-In
2.1. Stages of Bank Resolution
Resolution includes:
- Introduction of a temporary administration;
- Restoration of financial stability (bail-in or state assistance);
- Return of the bank to commercial management.
2.2. The Bail-In Mechanism
Bail-in allows for the conversion of unsecured liabilities (deposits over 1.4 million roubles) into bank capital through a write-down and issuance of new shares or bonds. This reduces the burden on the budget but may affect large depositors.
2.3. Comparison with European Experience
In Europe, bail-in has been applied to banks in Cyprus and Italy (2013–2014). A legislative framework exists in Russia, but it has not yet been activated due to regulators' cautious approach.
3. Deposit Insurance and Asset Protection
3.1. Insurance Coverage Limits
The Deposit Insurance Agency guarantees compensation of up to 1.4 million roubles for each depositor in a single bank. For deposits exceeding this limit, it is advisable to spread funds across multiple financial institutions.
3.2. Compensation Payout Procedures
In the event of a revocation of a licence, compensation is paid within 14 working days. The Agency covers 100% of the deposit amount within the limit, while remaining funds are paid out during the bank's liquidation, which may take years.
3.3. International Insurance Standards
In Germany, the insurance limit is €100,000, and in the USA, it is $250,000. The higher limits in Russia compared to emerging markets bolster confidence in the banking system.
4. Bank Liquidity and Deposit Outflows
4.1. Prudential Standards
The Central Bank sets a minimum LCR (Coverage Ratio) of ≥ 100% and NSFR (Stable Funding Ratio) of ≥ 100%, as well as reserve requirements of 4% for corporate deposits. Violating these norms leads to operational restrictions.
4.2. Stress Testing
Annual stress tests model a 20–30% deposit outflow; in 2024, 95% of systemically important banks passed the test with a result ≥ 100% on the LCR.
4.3. Depositor Panic and Real Threats
Mass withdrawals due to rumours can lead to increased defaults. However, rapid interventions by the Central Bank in providing liquidity have already prevented similar crises in 2008, 2014, and 2020.
5. Regulatory Measures by the Bank of Russia
5.1. Strengthening Capital Requirements
CAR (Capital Adequacy Ratio) has been raised to 10%, including counter-cyclical buffers. Major banks are additionally required to maintain a capital conservation buffer.
5.2. Reserve Standards
From July 2025, reserves on corporate deposits will be increased to 4%, reducing outflow velocity but lowering profitability for banks.
5.3. Preventive Monitoring
The Central Bank publishes quarterly reports on risks within the banking sector, including analyses of credit portfolios and liquidity, which assist depositors and investors.
6. Currency Restrictions
6.1. Currency Control
Restrictions on currency transfers abroad and mandatory sale of a portion of foreign exchange earnings strengthen the rouble but block access to foreign currency deposits.
6.2. Consequences for Depositors
During a currency moratorium, transactions on foreign currency deposits are suspended, as banks allocate reserves to maintain the exchange rate, temporarily complicating access to funds.
6.3. Alternative Approaches
Diversification: multi-currency accounts, dollar and euro bonds, and foreign ETFs help to mitigate currency risks.
7. Historical Precedents and Cases
7.1. Resolution in 2008
The resolution of "Investbank" and "Rosbank" occurred without applying bail-in; depositors received compensation from the Agency up to 1.2 million roubles.
7.2. The Crisis of 2014
The resolution of "Binbank" and "BM Bank" required a recapitalisation of 350 billion roubles; depositors received compensation within a month.
7.3. The 2020 Pandemic
Panic led to a 5% outflow of deposits, but the Central Bank quickly provided liquidity, preventing the freezing of deposits.
8. Forecasts and Development Scenarios
8.1. Baseline Scenario
The current measures of the Central Bank will be maintained, with no mass moratoriums or bail-ins; depositors are protected by the insurance limit of up to 1.4 million roubles.
8.2. Pessimistic Scenario
Falling oil prices below $60 per barrel, a sharp outflow of deposits, the introduction of a moratorium for up to 30 days, and the application of bail-in for amounts exceeding the limit.
8.3. Optimistic Scenario
Improvement in external conditions, influx of foreign capital, an increase in the insurance limit to 2 million roubles, and accelerated digitalisation of compensation payments from the Agency.
9. Recommendations for Depositors
9.1. Diversifying Deposits
Spread your deposits across multiple banks to increase overall protection to 2 × 1.4 million roubles and avoid the risk of bail-in on large amounts.
9.2. Alternative Instruments
Russian government bonds (yielding 6–8% per annum), bank bonds, and structured notes with capital protection can supplement deposits.
9.3. Monitoring and Information
Stay informed by tracking reports from the Central Bank and the Agency, as well as publications from rating agencies, and respond to signals of reduced liquidity and new regulatory measures.
10. Conclusion
The freezing of bank deposits in 2025 remains an unlikely scenario, provided that prudential norms are strictly adhered to and a reliable deposit insurance system is in place. However, the risks of bail-ins and currency restrictions necessitate that depositors diversify their holdings, make informed choices about their banks, and utilise additional capital protection tools.
