For a number of years, the Central Bank of the Russian Federation has been closely monitoring the work of credit institutions, often restricting their activities and revoking licenses for violations of the law. One of the signs that a credit institution is in trouble is the introduction of a temporary administration in the bank.
The introduction of a provisional administration in a bank essentially means that the current management of a credit institution is completely and completely removed from management. All working issues from this moment are decided by a temporary body.
The specialists who will become members of the provisional administration are selected and appointed, as a rule, by authorized representatives of the regional branch of the Bank of Russia. In some cases, the functions of managing a problem bank are assigned to the Deposit Insurance Agency.
The main task facing the temporary administration is to find and eliminate violations in the work of a credit institution. A thorough and comprehensive check is followed by a balanced decision on the future fate of the bank. It could be just a radical financial recovery or a license revocation.
The reason for the introduction of the provisional administration is that the bank's management cannot cope with its functional duties. A frequent reason for such a decision is the bank's inability to fulfill obligations to its creditors, as well as the lack or complete absence of money in the accounts. In such cases, the regulator introduces a three-month moratorium on the performance of obligations by the bank. The interim managers introduced by the Central Bank are starting to check the financial condition of the troubled bank.
An interim administration may well be appointed if, when checking the financial statements, it is revealed that the bank's capital level has decreased over the year by a third of the maximum, as well as with a critical decrease in liquidity. These are the most significant parameters of a credit institution's financial statements.
It happens that the bank does not fulfill the requirements of the Central Bank. In this case, the financial regulator often puts forward a requirement to change the bank's management and recommends a radical rehabilitation of assets. If measures are not taken, the temporary administration begins to work, which is precisely engaged in fulfilling the requirements put forward by the Central Bank.
As a rule, the temporary administration carries out work on the rehabilitation of the bank within six months. During this period, specialists may well outline a range of problems and develop optimal solutions to eliminate them. Usually, the check reveals violations much earlier than the end of this period. The outcome of the proceedings is either bank reorganization or the final revocation of the license.
The imposition of a moratorium and revocation of the license are insured events, so the bank's depositors may well apply to the Deposit Insurance Agency for the due payments. The right to receive the compensation stipulated by the law, the bank's clients receive two weeks after the introduction of a moratorium on the fulfillment of obligations to creditors. It should be remembered that until the end of the check, restrictions are usually imposed on the issuance of funds, and cash transactions are suspended.
The introduction of a provisional administration in a bank is considered, as a minimum, a sign of the Central Bank's distrust of the management of a credit institution. Clients of the troubled bank need to closely follow the news about the work of the temporary administration. It will also take patience, since the satisfaction of the needs of the credit institution's clients is not among the key problems solved by the temporary administration.
