Explainer-Russian banks face exclusion as allies deploy ‘financial nuclear weapon’ -Breaking
Tommy Wilkes and John McCrank, by Huw Jones
LONDON/NEW YORK – On Saturday, the United States, Britain, and European Union ratcheted down sanctions against Moscow, as Russia continued its offensive against Ukraine. The US said that they would stop access to SWIFT’s international payment system.
This is how the sanctions that have been already announced affect banks and investors.
What HAVE YOU ANNOUNCED SO FAR?
USA, Canada, Britain, Europe, and Canada committed to Saturday that they would remove certain Russian banks from SWIFT. They also deployed what France’s finance minister called a “financial nuke weapon”, due to the harm it would do to Russia, as well its trading partners.
After the U.S. Treasury Department stated it was targeting Russia’s “core infrastructure”, the Treasury Department sanctioned two of Russia’s largest banks, the state-backed Sberbank (sponsored by VTB). Otkritie and Novikombank, as well as senior bank executives are also on the list.
U.S. banks will have to cut their correspondent banking links with Russia’s largest lender Sberbank in 30 days. This allows banks to transfer money across the globe and make payments.
Washington officials also had the most powerful tool for sanctioning the government, which was adding VTB and Otkritie to the Specially Designated Nationals list. Effectively, the move kicks out the U.S. banks and bans them from trading with Americans.
Two Belarusian state-owned bank Belinvestbank, and Bank Dabrabyt are also under U.S. sanction for their support of Moscow’s attack.
Soon after VTB was declared bankrupt by the British, U.S. sanctions were imposed.
Boris Johnson, British Prime Minster, stated that Russian banks would be removed from clearing markets and sterling currencies.
Britain announced travel bans and asset freezes for members of Russia’s financial and political elites, as well as those with long-standing London lifestyles.
Sanctions will eventually be issued to more than 100 people, entities, and subsidiaries.
Ursula von der Leyen (President of European Commission) announced that EU leaders had agreed on sanctions targeting Moscow, which would target 70% Russian bank market.
Following the earlier week’s freezing of assets at Rossiya Bank Promsvyazbank, VEB and Rossiya Bank assets, the bloc placed a ban against issuing bonds or shares in the EU.
However, the EU has not placed asset freezes on top Russian banks Sberbank and VTB, Gazprombank.
Additionally, the bloc established a maximum cap of 100,000 Euros ($112,700.00), which Russian citizens cannot use to purchase euro-denominated shares.
The EU bans the financing of Russian state-owned companies. Some utilities are exempted from this prohibition. Russian counterparts cannot be served through EU-based securities settlement companies.
Russia’s banks, which are large and well-integrated into the international financial system mean that any sanctions against the largest institutions may be felt beyond Russia. It would cost more transactions to remove them from SWIFT.
It is expected that it will also affect the country’s European and other trading partners. Although further information is still being gathered, Germany said Saturday that allies are looking to “targeted functional restriction of SWIFT”, in order to minimize collateral damage.
SWIFT bans would add to the other restrictions that affect Russia’s most important banks in doing business abroad.
U.S. Treasury announced Thursday that the sanctions would affect billions of dollars in daily forex transactions by Russian financial institutions. The total forex transaction volume of these financial institutions is $46 billion, with 80% in dollars. According to it, “The overwhelming majority of those transactions are now being disrupted.”
Nearly 80% are under sanctions in Russia.
Sberbank claimed that they are ready to handle any development.
VTB stated that it was prepared for any scenario that could be severe.
Otkritie, Novikombank and Sovcombank didn’t respond to our requests for comment. Also, the Russian Embassy in the United States did not respond to our request immediately.
WHAT ARE YOU GOING TO DO HAREST?
Western creditors and banks have worried about Russia blocking SWIFT. This is used in more than 11,000 countries by over 200 financial institutions.
Although such a move could be devastating for Russian banks, the implications are complicated. According to Western officials, blocking Russia’s trade partners would cause them problems and be technically hard. Some have expressed concerns about the payment system for Russian imports of energy and how foreign creditors will get paid.
According to analysts, Russian institutions have a better ability to deal with sanctions than the eight-years before. However that doesn’t mean it wouldn’t hurt.
What FOREIGN Banks are the most exposed?
While many foreign banks have reduced Russia’s exposure since the annexation in 2014 of Crimea, several Western banks are involved in transactions and other relationships.
Last week was a difficult week for shares of Russian banks such as Austria’s Raiffeisen Bank International (OTC) and France’s Societe Generale.
According to Bank of International Settlement statistics, the Italian and French banks both had unpaid claims of approximately $25 billion each on Russia for the third quarter of 2020.
Austrian banks held $17.5 billion. This compares to $14.7 billion in the United States.
($1 = 0.8873 euros)