Fixing Russia's Banks documents how Russia's financial system is built on what Michael S. Bernstam and Alvin Rabushka call ersatz banks. These inferior imitation banks have served largely as tools of the government to redistribute public funds to favored firms. The highly vaunted achievements of privatization, removal of price controls, and foreign trade liberalization have failed to produce growth because of a lack of private financing.

National income has declined nearly 40 percent since 1992, with no recovery in sight. Failing to fix Russia's banks risks further economic stagnation or decline and financial catastrophe. Bernstam and Rabushka's bold, intriguing, provocative proposal - resting on an elaborate strategy of debt-for-equity swaps - would fix the banks, reduce government debt, strengthen the independence of the Central Bank, and lay a solid foundation for sustained economic growth.