Chat with us, powered by LiveChat

Western Countries Announce New Sanctions On Russia

John Galt

Updated: February 28, 2022

russia west stealing
Editor’s Note:

EDITOR'S NOTE: We saw it over the weekend. Protests from New York to Berlin to Russia’s homeland saw plenty of protests in support of Ukraine. While the image of a bare-chested Putin on horseback finds itself commanding from the safety of a bunker, Zelensky, a former comedian, chooses to risk his life on the front lines of the battle. The western world has launched a punishing volley of economic warfare against Russian banks, oligarchs, and even Putin himself (not without empathy for the Russian people). But will the impact bring about substantial pain to dissuade Putin from his course? The explainer you’re about to read reports on the banks that will likely be hit the hardest, the institutions that are most exposed, and the likely outcome resulting from these new sanctions on Russia (which remains a highly fluid and volatile situation).

LONDON/NEW YORK, Feb 22 (Reuters) - The United States, the European Union and Britain announced new sanctions on Russia on Tuesday after Moscow's recognition of two separatist regions in Ukraine as independent entities.

Chief among their targets: Russian banks and their ability to operate internationally.

Yet the impact of the new sanctions is likely to be minimal. Western governments - for now - are preferring to keep the much larger sanctions packages that they have planned in reserve should the crisis escalate.

It means Russian bankers or their Western counterparts with exposures to the country won't be losing much sleep.

Indeed, U.S. banks are not expecting global sanctions to have a major impact on American bank businesses or spark contagion risk, given lenders have little exposure to the Russian economy, said three executives familiar with industry thinking. 

Here's how the banks are being targeted and which measures might hit harder:


European foreign ministers agreed to sanction 27 individuals and entities, including banks financing Russian decision-makers and operations in the breakaway territories.

The package of sanctions also includes all members of the lower house of the Russian parliament who voted in favour of the recognition of the breakaway regions. read more

Britain imposed sanctions on Gennady Timchenko and two other billionaires with close links to Russian President Vladimir Putin, and on five banks - Rossiya, IS Bank, GenBank, Promsvyazbank and the Black Sea Bank. read more

Bank Rossiya is already under U.S. sanctions from 2014 for its close ties to Kremlin officials.

Washington imposed sanctions on Promsvyazbank and VEB bank.

It also ramped up prohibitions on Russian sovereign debt, which U.S. President Joe Biden said meant the Russian government would be cut off from Western financing. The U.S. Treasury said it was extending current prohibitions to cover participation in the secondary market for bonds issued after March 1 by Russia's Central Bank and other entities. read more

Russian dollar bonds extended their losses after the announcement on U.S. sanctions, with longer-dated issues slipping to record lows trading in the mid-90s, data showed. , The premium demanded by investors to hold Russian debt over safe-have U.S. Treasuries blew out to 329 basis points, the widest since the COVID market rout in spring 2020. (.JPMEGDRUSR)


For now - minimal.

Russia's large banks are deeply integrated into the global financial system, meaning sanctions on the biggest institutions could be felt far beyond its borders.

But the new sanctions focus on smaller lenders.

The measures targeting banks are not yet as extensive as those imposed after Russia's annexation of Crimea in 2014, although many of those sanctions remain in place.

Then the West blacklisted specific individuals, sought to limit Russia's state-owned financial institutions' access to Western capital markets, targeted the bigger state lenders, and imposed widespread limits on the trade of technology.

Britain's new measures refrained from imposing limits on the biggest state banks, cutting off capital for Russian companies, or ejecting other prominent so-called Russian oligarchs from Britain.

Shares in Russia's biggest banks, Sberbank (SBER.MM) and VTB soared after the state-controlled groups escaped the sanctions.

Analysts say Russian institutions are better able to cope with limited sanctions than eight years earlier, and Russian state banks have cut their exposure to Western markets.

Russia has since 2014 diversified away from U.S. Treasuries and dollars - the euro and gold account for a bigger share of Russia's reserves than do dollars, according to a January report from the Institute of International Finance.

Russia has some strong macroeconomic defences too, including abundant hard currency reserves of $635 billion, oil prices near $100 a barrel and a low debt-to-GDP ratio of 18% in 2021. read more

"The ones today were not that significant," said Samuel Charap, a senior political scientist at the nonprofit, nonpartisan RAND Corporation, about the U.S. sanctions.

“The question is where we go from here," he said. "I am increasingly pessimistic, and I think there is a high probability of significant further Russian military action and I think in that case, we are likely to see some of the really qualitatively more devastating measures than in the past."


The EU has said it is ready to impose "massive consequences" on Russia's economy but has also cautioned that, given the EU's close energy and trade ties to Russia, it wants to ratchet up sanctions in stages. read more

Officials consider Tuesday's measures as a first round.

Beyond lenders that do business directly with the breakaway regions, it's not clear yet when or whether the EU will hit the biggest banks.

Washington has prepared a raft of measures including barring U.S. financial institutions from processing transactions for major Russian banks by cutting "correspondent" banking relationships, sources told Reuters last week.

Disabling international payments would hit hard.

Those measures, however, may be kept in reserve.

Russia's Sberbank and VTB would face American sanctions if Moscow proceeds with its invasion of Ukraine, a senior U.S. administration official told reporters.

If such banks did get targeted, U.S. banks could face retaliation, said Charap, who pointed to cyber attacks as a potential weapon that could be used.


What the region's banks and Western creditors fear most is the possibility that Russia is banned from a widely used global payment system, SWIFT, which is used by more than 11,000 financial institutions in over 200 countries. read more

Such a move would hit Russian banks hard but the consequences are complex. Banning SWIFT would make it tough for European creditors to get their money back and Russia has been building up an alternative payment system.

Data from the Bank of International Settlements (BIS) shows that European lenders hold the lion's share of the nearly $30 billion in foreign banks' exposure to Russia.


Europe's banks - particularly those in Austria, Italy and France - are the world's most exposed to Russia, and have been on high alert should governments impose new sanctions.

Bank exposures to Russia
Bank exposures to Russia (Source: Reuters)

Italian and French banks each had outstanding claims of some $25 billion on Russia in the third quarter of 2021, according to BIS figures. Austrian banks had $17.5 billion. That compares with $14.7 billion for the United States.

Among the most exposed lenders is Austria's RBI (RBIV.VI), which has big operations in Russia and Ukraine. It has said "crisis plans" would come into effect if things deteriorate. Its shares closed down 7.5% on Tuesday. read more

Many foreign banks have, however, significantly reduced their exposure to Russia since 2014, making some bankers less concerned about the threat of sanctions.

Additional reporting by Tom Sims in Frankfurt, Iain Withers and Karin Strohecker in London, Michelle Price in Washington and John McCrank and Megan Davies in New York; Editing by Kevin Liffey, Rosalba O'Brien and Tim Ahmann
Originally posted on Reuters.

No Investment Advice

GSI Exchange is a publisher and precious metals retailer. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You understand that the Content on the Site is provided for information purposes only, and none of the information contained on the Site constitutes an offer, solicitation or recommendation to buy or sell a security. You understand that the GSI Exchange receives neither monetary or securities compensation for our services. GSI stands to benefit from the sell of retail cost precious metals on this site. To avoid hidden costs all prices are listed live 24/7 on this site. Read the full disclaimer

GSI Exchange Infokit - evergreen



Precious Metals and Currency Data Powered by nFusion Solutions