The Central Bank of the Russian Federation was created in January 1992 from the old Soviet banking system headed by Gosbank (The Soviet State Bank). The bank heads a two-tier banking system, and implements a monetary policy and regulates the commercial banking sector by setting the reserve requirements and the discount rate. The currency unit of Russia is the ruble, a currency that is in the process of becoming fully convertible with world currency. Russia, along with a few other countries of the former Soviet Union, decided to keep the ruble as its currency. The other important state bank is the Rosevneshtorgbank (Bank for Foreign Trade of the Russian Federation).

Around 2,000 commercial banks operate in Russia, a third of which are former specialized state banks. The rest are new institutions. Commercial banks include the Commercial Bank Industriaservis, the Commercial Credit Bank, the Commercial Conservation Bank, the Commercial Innovation Bank, the International Moscow Bank, St. Petersburg's Investment Bank, and the Construction Bank. The International Bank is a bank whose shares are owned by western banks, such as Citibank (US) and the Barclays Groups (UK), interested in doing business in the country.

Sberbank held around 86% of the population's savings in 1994. Having around 2,000 branches, it is by far the largest banking institution in the country. Sberbank became a joint-stock company in 1991, with the Central Bank taking a 20% shareholding. In addition to Sberbank (the Savings Bank), there were four other specialized banks: the Foreign Trade Bank (Vneshtorgbank), which is now more concerned with retail and corporate banking; the Bank for Construction and Industry (Promstroibank); the Agriculture Bank (Agroprombank); and the Social Sector Bank (Zhilotsbank). Formerly these were joint-stock banks but they relied on cheap credit from Gosbank.

The International Monetary Fund reports that in 2001, currency and demand deposits--an aggregate commonly known as M1--were equal to $40.9 billion. In that same year, M2--an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds--was $72.8 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 10.1%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 25%.

Russia had a small stock market in 1992. The market is considered an emerging market by Western investors with the potential for significant growth in coming years. Although the first stock market opened in Moscow in 1991, over 100 were in operation by 1996. The range, as well as the volume, of securities traded has been rapidly expanding. Inadequate regulation and custody registration systems have been the main bottlenecks in development. A Commission for Securities and Stock Market was established in late 1994. The second half of 1996 witnessed a huge rally in the value of Russian equity as it became clear that economic reforms would continue following the reelection of Boris Yeltsin as president.

Nevertheless, Russia's financial woes continued. In August 1998 the government defaulted on its debt. This action, in turn, led to the collapse of Russia's financial markets as the government abandoned support for the ruble and ceased bond payments. As a result, many banks became insolvent; only Central Bank intervention allowed many depositors to rescue a portion of their funds. Since Sberbank was originally a savings bank for the Soviet people, after the financial crisis of 1998 it received individual accounts from banks liquidated by the government. As a result, it has an unmatched network of 50 branches and over 2,000 outlets handling millions of accounts, both private and commercial. Also following the 1998 crisis, a group of new banks actually grew larger because of their avoidance of speculation in the short term loans on which the government had to default, and their dedication to professional services. These banks, which have prospered despite the weak economy (or perhaps because of it), include the Bank of Moscow, Alfa-Bank, Rosbank, Mezhprombank, Mosbusinessbank, MDM Bank, Sobinbank, National Reserve Bank, and Gazprom Bank.

The subsequent adoption of a tight monetary policy prevented the onset of hyperinflation and has contributed to the ongoing recovery. In fact, 2001 saw a considerable amount of economic firming. Market capitalization in combined Russian stock markets was, at $76 billion, nearly double the 2000 level, and the RSF Russia 100 Index, at 8602.7, was up 91% from the previous year. As of January 2002, the RSF Russia 100 Index was replaced by the S and P/RUX Composite Index. As of end 2004, that index stood at 760.9, up 15% from the previous year. In 2004, there were 215 companies listed on Russia's stock exchanges, which as of that year had a combined market capitalization of $267.957 billion...