In-article:

Explainer – Russian banks face exclusion as allies deploy ‘financial nuclear weapon’.


Here is a summary of the impact of the sanctions already announced on banks and investors:

WHAT HAS BEEN ANNOUNCED SO FAR?

The United States, Britain, Europe and Canada pledged on Saturday to remove some Russian banks from the SWIFT payment system, deploying what France’s finance minister previously called a “financial nuclear weapon” in because of the damage it would cause Russia and its trading partners.

The latest round of sanctions came after the US Treasury Department said it was targeting the “core infrastructure” of Russia’s financial system, sanctioning two of its biggest banks – the government-backed Sberbank and VTB. tat. Otkritie, Sovcombank and Novikombank, as well as some senior executives of public banks, are also on the sanctions list.

US banks must sever their correspondent banking ties – which allow banks to make payments to each other and transfer funds around the world – with Russia’s largest creditor, Sberbank, within 30 days.

The Washington authorities have also used the government’s most powerful sanctioning tool, adding VTB, Otkritie, Novikombank and Sovcombank to the list of Specially Designated Nationals (SDN). This measure had the effect of excluding banks from the American financial system, prohibiting their exchanges with Americans and freezing their assets in the United States.

American sanctions also target two Belarusian state banks – Belinvestbank and Bank Dabrabyt – because of the country’s support for the attack on Moscow.

The US sanctions came shortly after the UK government said it would impose an asset freeze on all major Russian banks, including VTB, and prevent major Russian companies from raising funds in Britain.

Russian banks will no longer be able to access sterling markets or clear payments, British Prime Minister Boris Johnson has said.

Britain also announced asset freezes and travel bans for members of Russia’s political and financial elite, including those who have long enjoyed a luxurious London lifestyle.

More than 100 people, entities and subsidiaries will ultimately be sanctioned.

EU leaders have adopted sanctions against Moscow that target 70% of the Russian banking market, European Commission President Ursula von der Leyen said on Friday.

The bloc imposed a ban on issuing bonds, shares or loans in the EU for the refinancing of Alfa Bank and Bank Otkritie, after freezing the assets of Rossiya Bank, Promsvyazbank and VEB earlier in the week .

The three main Russian banks, Sberbank, VTB and Gazprombank, are not subject to an EU assets freeze, however.

The Union has also set a limit of 100,000 euros ($112,700) for EU bank accounts of Russian citizens, who will not be allowed to buy shares denominated in euros.

Refinancing in the EU of Russian state enterprises is also prohibited, with the exception of certain public services. EU securities settlement agencies will not be allowed to serve Russian counterparties.

WHAT NEXT?

Russia’s big banks are deeply integrated into the global financial system, which means that any sanctions against the biggest institutions could be felt far beyond its borders. Excluding them from SWIFT would make transactions more difficult and more expensive.

But it is also expected to harm the country’s trading partners in Europe and elsewhere. Pending further details, Germany hinted on Saturday that the allies were seeking a “targeted and functional restriction of SWIFT” to limit collateral damage.

A ban on SWIFT would come on top of other sanctions that limit the ability of some of Russia’s largest banks to do business internationally.

The US Treasury said Thursday’s sanctions would disrupt billions of dollars of daily foreign exchange trading by Russian financial institutions. Altogether, these institutions carry out approximately $46 billion in foreign exchange transactions, 80% of which are in dollars. “The vast majority of these transactions will now be disrupted,” the Commission said.

The sanctions target nearly 80% of all banking assets in Russia.

Sberbank said it was ready for any developments.

The VTB said it was preparing for the most serious scenario.

Sovcombank, Otkritie and Novikombank did not respond to requests for comment. The Russian Embassy in the United States also did not immediately respond to a request for comment.

WHAT WOULD BE HARDEST TOUCH?

Western banks and creditors fear Russia will be locked out of SWIFT, which is used by more than 11,000 financial institutions in more than 200 countries.

Such a measure would hit Russian banks hard, but the consequences are complex. Western officials said blocking Russia was technically difficult and would hurt trading partners. Concerns were expressed, for example, about how payments for Russian energy imports would be made and whether foreign creditors would be paid.

Analysts said Russian institutions are better able to weather the sanctions than eight years ago, but that doesn’t mean they won’t be penalised.

WHICH FOREIGN BANKS ARE MOST EXPOSED?

Many foreign banks have significantly reduced their exposure to Russia since its annexation of Crime in 2014, but several Western banks have been involved in transactions and have other relationships.

Shares of banks with significant operations in Russia, such as Austria’s Raiffeisen Bank International and France’s Socit Gnrale, were hit hard last week.

Italian and French banks each had outstanding claims on Russia of around $25 billion in the third quarter of 2021, according to figures from the Bank for International Settlements.

Austrian banks had $17.5 billion. This figure is compared to 14.7 billion US dollars.

($1 = 0.8873 euros)



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