A system insuring individual deposits in commercial banks comes into effect on Nov. 1. The system provides for compensation ranging from 40 percent, to 100 percent depending on the deposit's size.

By year's end, the system is anticipated to embrace all regional banks and perhaps one of the former colossi. ARCO's deputy CEO Valery Miroshnikov comments on the system, terms and conditions for bank admittance, and which banks will join first.

RJ: What motivated the decision to insure individual deposits? Do you view individual depositors as an important component of the bank restructuring program?

VM: When we started working with the failed banks, the most pressing problems concerned liquidity and capital replenishment. All regional banks that have been transferred to ARCO's management (AvtoVAZbank, Pyotr Perviy, Chelyabcomzembank, Investbank, Kuzbassugolbank, Eurasia and Vyatka-Bank) have restored liquidity and resumed operations. Now it's time to proceed with restoring clientele. In order to attract corporate clients, it's necessary to offer competitive terms of depositing. As for individuals, it's necessary to create confidence. We view retail services as an important component of our banking business, and we understand that this task will require lengthy and painstaking work.

RJ: What are the aims of ARCO's deposit insurance program?

VM: For people, deposit insurance is an additional stimulus to keep their money in banks. For the banks, it's the opportunity to approach Sberbank's level of credibility. And for Sberbank, this will create competition, however small.

RJ: Your deposit insurance program is very reminiscent of the relevant draft federal law.

VM: This is not a coincidence. We used the draft law as a guideline for the elaboration of our system. Why invent anything? This way, we won't have to revise our system later when the law is adopted and comes into effect.

RJ: Which banks will join the system first?

VM: Formally, the system will be introduced Nov. 1 in Pyotr Perviy and Kuzbassugolbank. However, actual operations will begin sometime in mid-November because several formalities and paperwork await completion. Meanwhile, Kuzbassugolbank has recorded positive developments - its combined total of individual deposits has increased from 60 million rubles to 80 million rubles during the last three months.

RJ: How about other banks of the Kemerovo region? Besides Kuzbassugolbank, ARCO has taken Kuzbassocbank and Kuzbassprombank under its umbrella.

VM: Kuzbassocbank will soon complete the preparatory stage of transferring to Sberbank its ruble liabilities on individual deposits. The move helped considerably relieve tensions in the region. The question of liabilities denominated in hard currency remains unresolved, but there aren't many such accounts in the bank.

Kuzbassprombank's situation appears somewhat more complicated; it solicited individual deposits via insurance companies and pension funds. ARCO is busy looking for a legal mechanism to regulate the problem.

RJ: Which other banks will join the deposit insurance program by the end of the year?

VM: A total of five regional banks will join the system by the year's end, namely AvtoVAZbank, Chelyabcomzembank, Investbank, Eurasia and Vyatka-Bank.

RJ: The regional banks being bailed out are unimportant compared to, say, Rossiyskiy Kredit or SBS-Agro.

VM: As for Rossiyskiy Kredit, its depositors' problems can be resolved only within the framework of the bank's restructuring process. Big banks may join the deposit insurance system whenever they reach amicable agreements with their creditors. This past week, Rossiyskiy Kredit achieved some progress in determining sources of debt repayment. This deserves appraisal as a step toward the deposit insurance system.

RJ: Does ARCO's reserve of 500 million rubles ($19.5 million) sufficiently provide adequate guarantees to depositors?

VM: We work only with banks that we can adequately control and which have resumed operations. I can forecast, with a certain degree of confidence, that nothing terrible will happen to these banks; therefore, we'll not have to spend any reserve money.

The 500 million ruble reserve has been formed 'just in case,' and I'm firmly convinced this is much more than enough.

RJ: The draft law on a federal deposit insurance system sets the system's starting capital at 2 billion rubles ($78 million). Do you believe this would be sufficient?

VM: This is enough to begin operations and capital accumulation. I must say, however, that if such a corporation had been established before the August 1998 crisis - and if it had not accumulated enough capital by the crisis - the whole idea of deposit insurance could have been severely discredited.