Tommy Wilkes and John McCrank, by Huw Jones

LONDON/NEW YORK – Leaders of the United States, Britain, and European Union are targeting Russian banks in a new set of sanctions after Moscow invaded Ukraine.

Below is an overview of the impact that sanctions have had on investors and banks:

What HAVE YOU ANNOUNCED SO Far?

U.S. Treasury Department stated it was targeting Russia’s core infrastructure, and has sanctioned its two largest banks, state-backed Sberbank & 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 included the addition of VTB, Otkritie and Novikombank to the Specially Designated Nationals list. Effectively, the move kicks out the U.S. banks, prohibits them from trading with Americans and freezes all their U.S. assets.

Two Belarusian state-owned bank Belinvestbank, and Bank Dabrabyt are also under U.S. sanction for their support of Moscow’s attack.

After the British government announced it would place an asset freeze at all Russian banks including VTB and prevent major Russian companies raising funds in Britain, the U.S. imposed sanctions.

Boris Johnson, British Prime Minster, stated that Russian banks would be removed from clearing markets and sterling currencies.

Britain has also declared asset freezes as well travel bans to members of Russia’s elite political and financial, which includes those who enjoy high-powered London lifestyles.

In the end, more than 100 entities, individuals and subsidiaries will be sanctioned.

Britain previously imposed sanctions only on three billionaires who had close ties to Russian President Vladimir Putin, and five small lenders.

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.

After having frozen assets from Rossiya Bank (Promsvyazbank) and VEB earlier this week, the bloc banned the issuance of bonds, shares, or loans within the EU to refinance Alfa Bank and Bank Otkritie.

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.

With the exception of certain utilities, refinancing Russian state-owned businesses in the EU is prohibited. Russian counterparties will not have access to securities settlement houses within the EU.

The EU decided to allow correspondent banks to deal with Russian lenders, unlike the United States or Britain.

European leaders had earlier this week agreed to sanction 27 people and entities. This includes banks that finance Russian decision-makers as well as operations in Ukraine’s breakaway regions. However, not all of the largest lenders were included.

Washington had placed sanctions on Promsvyazbank, and VEB.

Also, the United States has increased prohibitions against Russian sovereign loans. U.S. President Joe Biden claimed that this would reduce Russia’s dependence on Western finance.

FINMA, the Swiss financial watchdog told banks to immediately freeze the assets of individuals and entities listed on EU sanctions lists.

WHAT IS NEXT

Russia’s banks of large size are well integrated in the international financial system. This means that any sanctions against Russia could reach far beyond Russia.

U.S. Treasury stated Thursday that 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 stated that they were ready for all developments.

VTB claimed it prepared for severe scenarios.

In a statement, it stated that they had devised several ways to mitigate the effects of the sanctions on clients.

Otkritie (Sovcombank), Novikombank and Otkritie did not respond to request for comment. Also, the Russian embassy in Washington did not respond to our request immediately.

New sanctions that EU leaders plan to announce include the freezing of Russia’s assets, and the suspension of access by Russian banks to its financial markets.

WHAT IS THE FINEST WAY TO WIN?

The biggest fear of Western creditors and banks is Russia’s exclusion from the SWIFT global payment system. This is used in more than 11,000 institutions across over 200 countries.

Although this would severely impact Russian banks, the implications are complicated. It would be difficult for European creditors, who are owed money by SWIFT, to recover their funds.

EU stated that it will evaluate the implications of Russia being removed from SWIFT, before deciding whether or not to use “financial nuclear weapons”.

Johnson, Britain’s leader, said Thursday that he would work with his allies in order to block Russia’s SWIFT access. It remains an option, according to Joe Biden, the U.S. president.

Although analysts believe that Russian institutions can handle sanctions better than they could eight years ago, it does not necessarily mean they will not.

According to the Institute of International Finance (the largest international bank group), U.S. sanctions against Russia could have significant consequences for Russia’s economy, citizens, and even cause recession.

WHERE ARE FOREIGN BRANKS THE MOST EXPOSED TO RISK?

While many foreign banks have reduced Russia’s exposure since 2014, there are still some Western banks that have participated in transactions and other relationships.

On Thursday, shares in European banks fell sharply with the index of European bank stocks closing at 8.1%.

Banks in Russia with substantial operations suffered a severe blow, Austria’s Raiffeisen Bank International losing 23% and France’s Societe Generale (OTC) losing 12%.

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. Compare that to the $14.7 Billion for the United States.

($1 = 0.8873 euros)