Yermak-McFaul International Group On Sanctions Against Russia Proposes To Disconnect All Major Russian Banks From SWIFT

The International Working Group on Russian Sanctions, co-chaired by Head of the Office of the President Andrii Yermak and former U.S. Ambassador to Russia Michael McFaul, proposes to disconnect all major banks of the Russian Federation from SWIFT.

This is stated in the Action Plan 2.0 on Strengthening Sanctions against the Russian Federation, Ukrainian News Agency reports.

In particular, it is proposed to impose full sanctions against the ten largest Russian banks.

Restrictions on the largest Russian banks - Sberbank, VTB Bank, Gazprombank, Alfa-Bank, Rosselkhozbank, Credit Bank of Moscow, Bank Otkritie, VEB, Promsvyazbank, and Sovcombank - are not aligned across the sanctions coalition.           

Eventually, the coalition should extend full sanctions to all systemically important banks.

While the ten largest institutions account for more than three-fourths of the Russian banking system in asset terms, we propose extending full sanctions to all systemically important banks that have the capacity to partially substitute for the largest banks.

A working definition of “systemically important” could be Russia’s top 30 banks, but the sanctions coalition will need to be flexible, given dynamic adjustments by Russia’s banks in response in part to sanctions.

It is also proposed to set deadlines for the exit of remaining foreign banks from the Russian market.

While many foreign banks have disengaged or are close to completing their exit (e.g., Société Générale and Citibank), several Western banks (e.g., Raiffeisenbank, UniCredit, and Hungary’s OTP) remain.

Regulators, including the European Central Bank, should establish clear processes and timelines that lead to the exit of all banks under their respective jurisdictions.

Besides, it is proposed to disconnect all major Russian banks from SWIFT in order to increase transaction costs.

Cutting off banks from SWIFT does not mean that they are no longer able to conduct cross-border

transactions, as alternative systems exist.

However, the disconnection of additional institutions has the potential to further increase costs and thus weaken the banking system overall.

As Ukrainian News Agency earlier reported, the Verkhovna Rada supported the application of sectoral economic sanctions to all financial institutions of Russia for 50 years, in particular to the Central Bank of Russia.

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