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reflects the economic interest of market participants, inside managers, and outside stockholders who are competing for control of enterprise assets. After privatization, most share activity was characterized by a one-way transfer of shares from initial small holders to managers and other closely related insiders. During the post-privatization period, not only managers of firms, but also large outside investors and financial intermediaries themselves have entered the market to acquire small stock holdings at advantageous prices. Where a control battle between insiders and outsiders was likely, secrecy was also important to stock buyers.

In a recent World Bank report, Morgenstern (1995:89-101) characterizes the Russian securities markets as a "one-way control market" where the brokers' principal customers, and often the brokers themselves, have little economic interest in transparency and liquidity. Since there is little two-way trading that would benefit from self-regulation and institutional support, brokers see control of the economic environment as a higher priority than liquidity. Brokers often view their principal customers as the issuers, not the investors. In the wake of privatization, stock exchanges functioned like a vacuum cleaner, vacuuming up securities from workers on behalf of inside mangers and strategic investors.

While much remains to be done to create genuine two-way trading in a stock market, a bank-centered closed market for ownership has emerged instead. Large outside blockholders are gradually consolidating control of a core group of large enterprises, initiating market-oriented changes, but the high degree of centralization of Russia's top-tier banks and their dependence on political relationships makes it uncertain whether they will be able to provide bank-based enterprise governance that is oriented to long-run efficiency.

Banks and Financial Industrial Groupings

A study of bank privatization by Abarbanell and Meyendorff (in press) shows that an emerging demand for financial institutions led to the commercialization and privatization of state-owned banks more rapidly and irreversibly than in other reforming economies. Over half of all Russian banks operating today originated in the private sector, with over 75 percent of banking assets under the control of private investors. During the past 8 years, the Russian banking sector has undergone an impressive change. A top tier of about a dozen banks has emerged that provides a wide variety of corporate and personal banking services. The top ten banks in this group account for more than half of total assets in the banking sector. While the Russian state still has majority ownership in the two largest banks, six of the top ten banks are new commercial firms, and they tend to dominate the market for new services.

Outside of the top tier of banks, there is a large pool of small regional



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