As safe as the Bank?

This study examines the financial behaviour of Russian households from the
collapse of communism to the financial melt down in August 1998. By transforming savings
into investment, financial intermediaries are important to economic growth. In post-Soviet
Russia, financial intermediaries were increasingly unable to attract new household savings, as
people turned to foreign currency. What determined the allocation of household savings? The
study considers the three main alternatives households could turn to: The state savings bank;
commercial financial companies; and foreign currency, mainly dollars.
But how do we go about to explain the behaviour of millions of individuals over time?
Economists usually assume that people maximise returns on their assets. Financial behaviour
would then reflect economic variables such as interest rate, exchange rate and inflation. Such a
view fi ts uneasily with observed behaviour in post-Soviet Russia. However, why would people
not allocate their savings in the most profi table way? This study holds that to understand
why people do what they do, we should listen carefully - although not uncritically - to what
they say and how they say it. On this view, we can explain the behaviour of individuals only
if we can understand them. And - since social phenomena are constituted by the behaviour
of individuals - such understanding is crucial to the causal explanation of macro level
phenomena.The historical narrative thus becomes an important vehicle for explanation of the
contemporary world.
Through analysis of discourses on financial institutions, as they appeared in newspapers of
the day and as I have been able to gather from interviews conducted in 2004, this study identifies certain dramatic events that altered the way Russians perceived different financial institutions
and their view on trust, risk and profitability, and finds that such changes in perception go
a long way to explain the changes in observed behaviour in this period.