Ignatyev's first remarks made it clear that stability had not been brought to the banking sector in the four years since a number of banking heavyweights collapsed in the financial crisis. He said the Central Bank on Wednesday installed external management at International Banking Corporation, the country's No. 52 bank with more than 6 billion rubles ($200 million) in assets. This is the first step toward putting a bank into bankruptcy.

"The last time we looked at IBC's financial statements, we saw no problems there," Ignatyev told the conference, Prime-Tass reported. "But after we received the first information last week that the bank was experiencing problems, we initiated an audit. And the results were worrying."

The bank suffered a severe lack of liquidity over the past month, which was not reflected in its books as of Jan. 1, analysts said. As such, the bank could not make good on its short-term obligations from last week.

IBC officials could not immediately be reached for comment.

IBC is a relatively large bank "even by Moscow standards," Ignatyev pointed out.

The bank was an active member of the U.S.-backed Delta Credit mortgage program and had a former president of the American Chamber of Commerce in Russia on its board.

Ignatyev conceded that the Central Bank's failure to detect its troubles meant banking supervision is still insufficient.

"The first thing we need to do is to strengthen banking control," he said.

Gerashchenko said this step would not be enough. "No banking supervision can prevent dirty dealing in the banking sector," he was quoted by Interfax as saying.

"If there is fraud, there is no way to figure it out until the bank faces liquidity problems," he said.

Standard & Poor's downgraded IBC's long- and short-term ratings Tuesday to "Default," following IBC's failure to meet its maturing interbank obligations. The bank's CEO Anton Melnikov resigned Monday because of the financial problems, and Delta Credit said it had transferred all $5 million in outstanding mortgage loans from IBC to its own books a month ago.

Kudrin called Russia's banking reforms the most ambitious of those tackled in other emerging markets. He said bankers have to pay more attention to capital adequacy ratios and their capital bases.

However, analysts said IBC's problems show once again that the ratio system does not work and that banks can report whatever figures they want. "As of Jan. 1, IBC's reported liquidity ratio was 99.8 percent, while in reality it was 56 percent if we exclude reciprocal claims with another major bank that helped IBC fit the 70 percent minimum required by the Central Bank," said Mikhail Matovnikov, deputy head of the Interfax Rating Agency.

National Banking Association chairman Sergei Yegorov presented figures showing that the number of banks in Russia dropped by 20 percent over the past three years, while the number of bank branches fell by 23 percent.

He said the sector is undergoing a consolidation and is increasing its capital base.

As of March 1, more than 250 banks had capital exceeding 150 million rubles ($5 million).

Turning to Kudrin, Yegorov call for measures to protect banks during the process of Russia's accession into the World Trade Organization.

"We are not going to introduce any additional barriers for foreign capital because of Russia's entry into the WTO," Kudrin replied.

Ignatyev said that without structural reform, sufficient supervision and government protection, the overall number of banks will inevitably decline in the coming years. Russia had 1,327 banks as of April 1.

Ignatyev said he doubted that the number would eventually drop to 200 to 300, as the government has predicted.

He also said that one of his priorities will be the further liberalization of the currency market. "The current law is outdated and does not meet the needs of a new reality," he said.

Ignatyev said he expects the average ruble rate to be 31.5 rubles to one U.S. dollar this year and annual inflation to fall to between 12 percent and 14 percent.

He largely avoided taking questions from journalists, leaving Gerashchenko to enjoy the limelight.

The National Banking Association presented Gerashchenko with a full-length portrait of himself painted by Alexander Shilov.

Now a pensioner, the controversial yet respected former central banker said he is getting a first-hand chance to experience the problems of Russian legislation. "I still don't know who will pay me as a former state employee," Gerashchenko said. "If I fail to find out, I will probably start to work again and realize my childhood dream of becoming a street cleaner and keeping the roads clean."

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