The bank clean-up nobody enjoyed but everybody needed

Before 2014 Ukraine had around one hundred and eighty banks. Within a few years roughly half of them were gone.

What most of them actually were

This is the part that gets lost. A large number were not banks in any functional sense. They were treasury operations attached to an industrial group, taking deposits from the public and lending them to companies owned by the same people who owned the bank. Related-party lending on that scale is not banking; it is a way of converting other people's savings into your own working capital, with the depositor carrying the risk.

Others were smaller and simpler: vehicles for moving money out of the country, or for converting cash of uncertain origin into something else.

What the clean-up cost

A great deal, and it should be stated honestly. Depositors above the guarantee limit lost money. Businesses lost working capital overnight when their bank was declared insolvent. Confidence in the entire system collapsed and took years to rebuild. The fiscal cost of recapitalisation and deposit payouts was very large.

The nationalisation of the largest private bank in 2016, after a hole was found in its balance sheet, was the single biggest item and remains legally contested.

Why it had to happen

Because the alternative was worse. A banking system built on related-party lending cannot finance anyone outside the group. Credit does not reach a company that is not owned by someone who owns a bank. That is not a market economy with a weak financial sector; it is a closed circuit that looks like one.

The result

The banks that survived are properly capitalised, supervised against real standards, and lend on assessment rather than ownership. When the system was tested after 2022 — a genuine stress test that no regulator would design — it held, stayed profitable and kept payments running.

That outcome was bought at a high price in 2015 and 2016. It was worth it, and I would not have said so at the time.

Half the banks closing hurt on our side too — one of our accounts was frozen and we never saw that money again. But today I do not hesitate to place funds with a Ukrainian bank, and that is what the clean-up bought. Keeping a non-functioning institution alive always costs more than closing it — the bill simply arrives later.