On Monday 28 February French Finance Minister Bruno Le Maire welcomed the “immediate effects” of European and international sanctions that were approved last weekend targeting Russia’s economic and financial interests.
In addition to the withdrawal of “a number of [Russian] banks” from the international Swift payment circuit (see EUROPE 12899/4), tens of billions of euros of reserves in the Russian Central Bank have been frozen in the G7 countries, a situation that “greatly reduces its reserves and its ability to finance Russian trade in foreign currency”, he added. He noted the “immediate effects” of the decisions taken at “the level of the rouble, interest rates and Russian financial markets”.
The EU Council decision to freeze the assets of the Russian Central Bank nevertheless allows the competent national authorities to authorise a transaction “provided that it is strictly necessary to ensure the financial stability of the Union as a whole or of the Member State concerned”.
See the Council decision: https://aeur.eu/f/jx
The list of Russian banks that would be excluded from the Swift system is not yet available.
As Swift is the system for initiating interbank payments worldwide, banks that are excluded from it can find other ways to start their transactions, “but not at the same speed, cost and security”, said European Commission spokesperson Eric Mamer.
On Monday, Mr Le Maire brought together his German, Italian, Spanish and Dutch counterparts, the presidents of the Eurogroup and the ECB, as well as European Commissioners Valdis Dombrovskis and Paolo Gentiloni, to strengthen coordination on the measures taken, with a view to holding an extraordinary meeting of European finance ministers on Wednesday 2 March, on the eve of the European summit in Versailles on Thursday 10 and Friday 11 March.
According to a French source, the Commission was expected to make a proposal “in the next few hours”, the application of which would have to be “as rapid as possible from its entry into force, while taking into account the operational realities faced by European financial institutions”. Ministers agreed to assess “within a week” the concrete economic impact of economic and financial sanctions on European companies and to coordinate any support they may need (see EUROPE 12899/4).
A G7 Finance meeting is also scheduled for Tuesday on Swift-related sanctions.
The Russian Central Bank’s reserves are estimated to be around $650 billion, of which $300 billion is located in the central banks and banking system of the G7 countries. Depriving it of these assets would limit its ability to support Russian companies and banks in difficulty and maintain the level of the rouble, which was in free fall on Monday. The fall of the rouble makes imports more expensive and severely limits the purchasing power of Russians. Large cash withdrawals are taking place in Russia, according to the Moscow correspondent of Le Monde.
In a statement on Monday, Bank of Russia Governor Elvira Nabiullina stressed the need to use “a wide range of tools to maintain financial stability” in response to the “dramatic” change in economic conditions caused by the “considerable” increase in the rouble’s exchange rate and the partial freezing of its assets.
The Bank of Russia raised its key interest rate from 9.5% to 20% and intervened in the currency markets to support the rouble ($1 billion on Thursday, a smaller amount on Friday). It continues to provide liquidity to meet “abnormal” demand from the banking sector, as Russian banks have been allowed to not review their capital levels in light of changes in their exposure to foreign currency assets. It is asking banks to not penalise companies and individuals in difficulty by rescheduling their loans.
In addition, the Russian government has restricted the withdrawal of capital held by non-residents. Faced with the risk of turbulence, MOEX, Russia’s main stock exchange, will not open until 5th March and its website was not accessible on Monday.
See the Bank of Russia’s statement: https://aeur.eu/f/j9
On Monday, the European Central Bank, acting as the single supervisor within the banking union, found that the European subsidiary of Sberbank, Russia’s largest credit institution, majority-owned by the Russian state, and two other entities in Croatia and Slovenia were “failing or likely to fail” due to “significant” deposit withdrawals caused by “geopolitical tensions”. It stated that the subsidiary in question “will not be able to pay its debts or other liabilities as they fall due”.
In the wake of this, the Single Resolution Board, the European authority responsible for resolving a troubled bank in the euro area, made the same finding. It is now examining “the next steps” that may be required to preserve financial stability in the banking union, including “resolution action” (e.g. bail-ins, asset sales, etc.)
In any case, eligible deposits of savers are protected “up to €100,000” by EU law, the SRB Council recalls. (Original version in French by Mathieu Bion)