Banking in the Soviet Union

The Soviet Union was the first jurisdiction to implement a single-tier banking system, an experience that was subsequently emulated by a number of Communist states. According to Marxist-Leninist doctrine, the socialist state should use finance "as an instrument of socialist construction" and "as one of the most important instruments in carrying out its function", with banking forming a part of a financial system that also includes the fiscal and budgeting framework of the state, social insurance, and budget control of state and collective enterprises.

Overview

On 14 December 1917, the Bolshevik leadership decreed the immediate nationalization of all commercial banks into the People's Bank, which had succeeded the State Bank of the Russian Empire. Simultaneously, the Nobles' Land Bank and Peasants' Land Bank were wound up as part of the nationalization of land. In January 1920, the People's Bank was in turn abolished, after its regional offices had been merged with those of the state treasury. During the period of War Communism that followed, the part of the country controlled by the Bolsheviks was reduced to a barter economy with no banking activity whatsoever.

Following the re-establishment of the State Bank in 1921, the Soviet banking system again took shape as part of the New Economic Policy (NEP) in the early 1920s. Following the NEP, the Soviet system relied on several specialized financial institutions, which were reorganized in waves of reform following major leadership transitions in 1928–1932, 1955–1959, and one last time 1987-1988 shortly before the unravelling of the Communist system.

The system made a sharp distinction between, on the one hand, state-funded credit institutions whose purpose was to finance the economy, and on the other hand, deposit-funded institutions aimed at funding the state itself. The first category included the Gosbank (State Bank of the USSR), est. October 1921 as State Bank of the Russian Soviet Federative Socialist Republic whose scope expanded to the whole Soviet Union in 1923, and a series of ostensibly more specialized promotional banks. In the second category was the State Labor Savings Banks System of the USSR, which had a monopoly on the collection of household savings.

The Gosbank was the only provider of short-term credit in the system following a decree of 30 January 1930. the Gosbank also provided long-term credit, but was not alone in that role which was also supported by the specialized promotional banks. The latter varied over time and included:

• the Industrial Bank (Russian: Промышленный банк or Prombank) est. 1922, restructured in 1959 as Construction Bank of the USSR (Stroybank)
• the Electrobank (est. 1922), absorbed by Prombank in 1928;
• the Central Bank of Public Utilities and Housing Construction (Russian: Центральный банк коммунального хозяйства и жилищного строительства or Tsekombank), est. 1925, terminated in 1959 with its operations allocated to the Gosbank and Stroybank;
• the Agricultural Bank of the USSR (Russian: Сельскохозяйственный банк СССР or Selkhozbank), established in 1932, terminated in 1959 with its operations allocated to the Gosbank and Stroybank.

In addition to the savings banks, a cooperative banking system was established in 1922 as the Bank of Consumer Cooperatives (Russian: Банк потребительской кооперации or Pokobank), reorganized in 1923 as the All-Russian Cooperative Bank (Russian: Всероссийский кооперативный банк or Vsekobank), then replaced in 1936 with the All-Union Bank for Financing the Capital Construction of Trade and Cooperation (Russian: Всесоюзному банку финансирования капитального строительства торговли и кооперации or Torgbank), which was eventually abolished in 1956.

Cross-border finance

Whereas the Soviet banking system was largely designed for autarkic resilience, it nevertheless included institutions dedicated to promoting foreign trade and to procure hard currency. The Foreign Trade Bank of the USSR (Vneshtorgbank, established 1922 as Russian Trade Bank and renamed 1924) played a major role in trade finance. Separately, the Gosbank created a network of foreign subsidiaries including Moscow Narodny Bank Limited (est. 1919 in London from an earlier affiliate of a Russian state-owned bank), BCEN-Eurobank (est. 1921 in Paris as Banque Commerciale pour l'Europe du Nord), Ost-West Handelsbank (est. 1971 in Frankfurt), Donau Bank (est. 1974 in Vienna), and East-West United Bank (est. 1974 in Luxembourg).

Perestroika reform

Under Perestroika in 1988, the Soviet Union initiated a transition towards a two-tiered system, with a number of new cooperative banks licensed starting from August 1988, the first being Soyuz-Bank in Shymkent (now in Kazakhstan) followed by Patent Bank in Leningrad. The Stroybank was reorganized in 1988 as the State Commercial Industrial and Construction Bank of the USSR (Russian: Государственный коммерческий Промышленно-строительный банк СССР or Promstroybank), with some operations spun off as Agro-Industrial Bank (Russian: Агропромышленный банк СССР or Agroprombank) and Bank of Housing, Communal Services and Social Development (Russian: Банк жилищно-коммунального хозяйства и социального развития СССР or Zhilsotsbank).

See also

• Banking in Russia
• Banking in Ukraine