Commercial Banking Is off and Running in the Free-Wheeling World of Finance in the Former Soviet Union, the Rapid Growth of New Commercial Banks Signals Moves toward a Market Economy, but Also Challenges Fledgling Legal Institutions. Many Banks Lend Money without Supervision and under a Cloud of Rumors about the Origin of Funds and the Legality of Dealings

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A JAZZ band plays softly; men in black ties and ladies in long evening dresses swirl around tables laden with smoked sturgeon and champagne. Russian Vice President Alexander Rutskoi and other celebrities are on hand. Mercedes Benzes and BMWs fill every parking space outside the Moscow Commercial Club, while policemen block the street allowing only those with invitations to enter.

Menatep, one of the hottest and most controversial new firms to emerge in the wild world of finance in the former Soviet Union, is having a party. Begun by a group of men in their 20s, Menatep has grown from its beginnings in 1986 as an entrepreneurial offshoot of the Komsomol, the Communist youth organ- ization, into an international financial group handling everything from overseas currency speculation to trade financing.

"Menatep is the most sophisticated {bank} in Moscow," says Daniele Nicylin of the Swiss investment firm Riggs Volmet, where Menatep has been a client for two years. "They are very young and really want to start a new business for their country." Seeds of free market

Along with the emergence of hundreds of commodities exchanges, the growth of commercial banking is one of the most visible signs of the beginnings of a market economy in the former Soviet Union. Since the monopoly of the state-run banks was removed in 1988, registered commercial banks have increased from 41 in January 1989 to almost 1,500 today.

The banks' growth has outstripped the primitive legal structure. Now they lend money virtually without supervision or control of the central banking institutions, to the dismay of those authorities. "There is no legislation; there is no liquidity," says Viktor Pobedinsky, president of the private financial group Fininvest. "Everyone does whatever they like."

Among the commercial banks, Menatep has an unusually high profile. Its billboards decorate whole sides of Moscow buildings. People lined up last year to buy 1,000-ruble shares in the group. As one of a handful of banks allowed to deal in foreign currency, Menatep booths in Moscow post offices offer ordinary citizens the chance to exchange dollars for rubles or even to buy limited amounts of dollars.

But constant rumors dog Menatep about the origins of its funds and the legality of its dealings. It is widely believed that the firm is a front for the Communist Party and the KGB, that it laundered party money into foreign bank accounts. Such charges are by no means confined to Menatep - they beset almost any successful business here - and Menatep officials vigorously deny them. Legal challenge

Many of the accusations of illegality come from central authorities, including the former Soviet State Bank, Gosbank, and the Russian Central Bank. The head of the Moscow office of one Western bank says State Bank officials warned him against doing business with Menatep. And the chairman of the Russian Bank called it a "dubious banking operation" in a September television interview. Menatep promptly sued, and won its case in a Russian court Dec. 16.

It might be more accurate to describe the entire banking system here as "dubious." Inevitably, many of the "commercial" banks formed in the last two years have their origins in the state-run economy. A 1986 banking reform divided the State Bank into a system of banks, largely as the mechanism to transfer money from the central ministries to enterprises. The Agroprom bank, for example, which is one of the largest in the country, services the collective farms and agro-industry. In some cases, existing state banks were just re-registered as commercial banks after 1988. In others, groups of enterprises created a bank based on their deposits.

But these banks also hold as assets the huge and largely uncollectable loans the government made to enterprises as subsidies for their losses. In turn the banks use these assets to lend money, the vast majority of it for short terms and at interest rates averaging 20 percent. …