© Reuters. FILE PHOTO: A view shows Russian ruble coins and US dollar banknotes in this illustration taken October 26, 2018. REUTERS / Maxim Shemetov
By Tommy Wilkes
LONDON (Reuters) – The European Union and Britain announced new sanctions against Russia on Tuesday after Moscow recognized two breakaway regions in Ukraine as independent entities, including the United States. will soon announce their own measures.
Chief among their goals: Russian banks and their ability to operate internationally.
However, the impact of the new sanctions is likely to be minimal. Western governments – for now – are preferring to keep the much larger sanctions packages they have planned to fall back on should the crisis escalate.
It means that Russian bankers or their Western counterparts with exposure to the country won’t lose much sleep.
Here’s how banks are being targeted and which measures could hit them harder:
WHAT HAS BEEN ANNOUNCED?
European foreign ministers agreed to sanction 27 individuals and entities, including banks that finance Russian planners and activities in the breakaway territories.
The sanctions package also includes all members of Russia’s lower house of parliament who voted in favor of recognizing the breakaway regions.
Britain has imposed sanctions on Gennady Timchenko and two other billionaires with close ties to President Vladimir Putin, and on five banks – Rossiya, IS Bank, GenBank, Promsvyazbank and Black Sea Bank.
Lenders are relatively small, and only Promsvyazbank is on the Russian central bank’s list of important credit institutions.
Bank Rossiya has been under US sanctions since 2014 for having close ties to Kremlin officials.
Experts say these measures are modest.
“This is a targeted, limited start, a shot on par,” said Paul Feldberg, a punishment expert and partner at law firm Jenner & Block. on sanctions and is a partner at law firm Jenner & Block, adding that Putin doesn’t seem to care.
The United States, which has rolled out a series of measures to hit the Russian economy if Moscow invades Ukraine, has yet to announce sanctions that will be imposed immediately but will be set later on Thursday. Three.
WHAT WILL BE THE IMPACT?
Current – min.
Russia’s major banks are deeply integrated into the global financial system, meaning sanctions against the largest institutions can extend far beyond the country’s borders.
But the new sanctions are focused on smaller lenders.
Measures targeting banks are not yet as widespread as those imposed after Russia’s annexation of Crimea in 2014, although many sanctions remain in place.
The West then blacklisted specific individuals, seeking to limit the access of Russian state financial institutions to Western capital markets, targeting large state lenders. and impose broad restrictions on technology trade.
The new British measures limit the imposition of limits on the largest state-owned banks, cutting capital for Russian companies, or excluding other prominent Russian oligarchs from Britain.
Shares of Russia’s biggest banks, Sberbank and VTB, jumped after state-controlled groups escaped sanctions.
Analysts say Russian institutions are better able to cope with limited sanctions than they were eight years earlier, and Russian state banks have cut their exposure to Western markets.
Since 2014, Russia has diversified away from US Treasuries and dollars – the euro and gold make up a larger share of Russia’s reserves than the dollar, according to a January report from the Institute of International Finance.
Russia also has some strong macroeconomic protections, including ample hard-currency reserves worth $635 billion, oil prices near $100 a barrel, and a low debt-to-GDP ratio of 18 percent in 2018. 2021.
WHAT NIGHT COME NEXT?
The EU said it was ready to impose “huge consequences” on the Russian economy but warned that, due to the EU’s close trade and energy ties with Russia, the EU wanted to impose sanctions. penalty in stages.
Officials see Tuesday’s measures as a first round of sanctions.
Aside from lenders doing business directly with the breakaway regions, it remains unclear when or whether the EU will hit the biggest banks.
Washington has prepared a series of measures including banning US financial institutions from processing transactions for major Russian banks by cutting “agent” banking relationships, sources told Reuters. last week.
Disabling international payments will be hit hard.
Such measures, however, can be kept in reserve.
Washington can also use its most powerful sanctions tool against certain Russian individuals and companies by placing them on the Special Designated Nationals (SDN) list, removing them from the system. efficient banking of the United States.
Sources familiar with the planned measures say VTB Bank, Sberbank, VEB and Gazprombank are possible targets, although it remains unclear whether Russian banks will be added to the SDN list. .
WHAT IS HARDER?
What banks in the region and Western creditors fear most is that Russia is banned from using the widely used global payment system, SWIFT, used by more than 11,000 financial institutions in more than 200 nation.
Such a move would hit Russian banks hard, but the consequences are complex – banning SWIFT would make it difficult for European creditors to get their money back, and Russia is building an alternative to SWIFT.
Data from the Bank for International Settlements (BIS) shows that European lenders hold the largest share of the nearly $30 billion foreign banks’ exposure to Russia.
WHAT FOREIGN BANK IS THE MOST CONTACTED?
Europe’s banks – especially those in Austria, Italy and France – are the most exposed to Russia in the world, and have been on high alert if governments impose sanctions new penalty.
IMAGE: Bank exposure in Russia – https://fingfx.thomsonreuters.com/gfx/mkt/myvmnxmabpr/banks%20russia.PNG
According to BIS data, Italian and French banks each had about $25 billion in claims against Russia in the third quarter of 2021. Austrian banks had $17.5 billion. That compares with $14.7 billion for the United States.
Among the most exposed lenders was Austria’s RBI, which has major operations in Russia and Ukraine, and said a “crisis plan” would come into effect should things go badly. Its shares closed down 7.5% on Tuesday.
However, many foreign banks have significantly reduced their exposure to Russia since 2014, leaving some bankers less concerned about the threat of sanctions.