Framework Balance-Econometric Model of the Russian Banking System

<p>The aim of this paper is to model the balance sheet and the net income statement of the Russian banking system using a wide range of variables as well as the inclusion of exchange rates during the period from January 2004 to June 2013. Therefore, the objectives of this research are the following: modeling needs in liquid assets and liabilities; modeling the requirements of equilibrium of the balance; modeling currency components; modeling the equality of revenues and costs in the net income statement. Such a construction will enable to model the reaction of the banking system to external effects, and it will help to answer such questions as: how does the banking system react, for example, to the devaluation or sudden changes of the exchange rates in principle, to the change of the Central Bank&rsquo;s policy?</p><p>The given balance-econometric model describes not only the banks&rsquo; core activity but accompanying functions as well and can be applied as a framework for the model of optimal behaviour. The model is built with the help of econometric relations, making distinction between national and foreign currencies, with balance equalities and relations between aggregates, having different speeds of turnover. Apart from standard econometric tools, several new methods are suggested. These are the method of eliminating the seasonal factor, the method of estimating three simultaneous equations and a special procedure of expalanatory variables exclusion, to get the final model, with R² decomposition and coefficients significance. With the scenario specification of exogenous variables the constructed model enables to get adequate predictions for the behaviour of the banking system including all the inter-relations for two years.</p><p>Apart from the model for the balance sheet, the model for the net income statement is built. It is directly connected with the model for the balance and represents quarterly data in contrast to the monthly data of the balance. For this reason, two more methods are proposed: the method of getting interest rates and the special method for reestimating foreign currency parts of applied aggregates which describes properly the factual data. Having defined exogenous variables and having chosen the scenario for them, having modelled the endogenous variables the model is built with inter-relations which describe the interconnections of revenues and costs taking into account exchange rate for 8 quarters.</p>