Subject The article describes the specifics of the banking sector evolution in the Republic of Dagestan, its role and importance in the economy of the region at present and in the future. The study investigates reasons and consequences of reducing the number of credit institutions in the region. Objectives The aim of the study is to reveal the problems of the evolution of the banking sector in the economy, and its impact on the economic structure of the region in the context of innovation development prospects. The objectives were as follows: to identify current trends in the banking system development in slumping economy conditions, causes and consequences of a sharp increase in the number of financial and credit institutions during transition to market economy; to explore the problems associated with termination of operations of regional banking structures, their impact on accelerated development prospects of the depressed region; to substantiate the need for urgent measures to support the banking sector in order to stabilize the economy of the depressed region and create prospects for innovation. Methods I used a variety of comparative analysis approaches and the elements of the situational analysis to investigate the specific features of the banking sector development of the Republic of Dagestan. Results Isubstantiated the need to apply a selective approach to strengthening the banking sector in the specific conditions of the depressed region. Addressing the issues of economic stabilization of the region and small and medium-sized businesses support requires a stable institutional environment, including a sound banking system. Conclusions and Relevance I conclude on the need to further improve and support the banking sector of the Republic of Dagestan, as a key factor of economic development, particularly, small and medium-sized businesses development. The role of small banks in promoting economic growth, including in remote areas, is rather important.
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