Banks also have to confront a striking geopolitical risk: Russia is a nuclear state, and Putin took the Cold-War era step of boasting about its arsenal in a speech trying to rationalize the invasion. President Joe Biden was even asked Thursday whether he thought Putin was threatening a nuclear strike. “I have no idea what he’s threatening,” Biden told reporters at the White House.
The comprehensive nature of the Russia sanctions is unprecedented.
On Thursday afternoon, Biden unveiled a raft of new measures, including freezing the assets of four major Russian banks, Sberbank PJSC and VTB Bank PJSC among them. Clay Lowery of the Institute of International Finance said the new measures are aimed at causing domestic bank runs, among other things.
“These sanctions will have a significant impact on Russia’s overall economy, and average Russians will feel the cost,” Lowery said. But the impact on foreign lenders from these specific curbs is expected to be limited because “existing sanctions, the risk of additional measures, and over-compliance have led many to scale back engagements” already, the IIF wrote in a recent report.
Biden and British prime minister Boris Johnson decided to hold off on cutting Russia’s access to Swift, the global messaging system for the world’s financial institutions. The option is still on the table for future retaliation.
In the finance industry, there’s a question of whether an exit from Swift would cause as many problems for international banks as for the Russian government.
Biden’s targeting of a broad swath of Russian elites and their family members, following a similar move by Johnson will be of greater concern to banks with large wealth management operations, especially those in Europe. Swiss private banks are historically a prime destination for Russian money, as is the City of London.
“In terms of oligarchs involved there’s a lot to unscramble here and there are fire drills happening everywhere around London,” said Michelle Linderman, sanctions lawyer at Crowell & Moring LLP.
--With assistance from William Shaw, Sridhar Natarajan and Max Reyes.
This article was provided by Bloomberg News.