US prepares sanctions against Russian state banks

In addition to the sanctions against Russian government debt, which promise to cause foreign investors to flee Russia and drive the ruble even lower, US senators have prepared a powerful blow to the Russian banking system.

A virtually unnoticed provision in the new bill to expand the sanctions proposes new strict restrictions on Russia’s largest state banks, reports.

This provision may in fact cause more tangible damage to the Russian economy than the restrictions pertaining to government debt which startled investors, Barclays predicts.

“The most drastic option of sanctions against transactions with Russian banks, in which all state banks would be placed under sanctions, would have significant consequences for the entire Russian economy, which could be even more painful than the measures against sovereign debt,” observes economist Liza Ermolenko from Barclays Capital in London.

Bloomberg reported that one of the provisions of the new bill proposes to “prohibit all transactions in all property and interests in property of one or more of the Russian financial institutions”.

The mentioned institutions include Sberbank, VTB, Gazprombank and Rosselkhozbank, the four largest banks in the Russian banking system in terms of holdings.

The same sanctions would also affect Promsvyazbank, which was nationalized in December last year and turned into a bank for servicing the state defense order.

The list also includes the Bank of Moscow, which was merged with VTB in 2016, and Vnesheconombank – the state-owned development bank, which the Kremlin is counting on to help finance new mega-construction projects, including Putin’s decree in May to speed up the economy.

The aim of the bill is “to impose crushing sanctions against Putin’s Russia until it ceases and desists meddling in the US electoral process”, stops cyberattacks and stops getting involved in Ukraine’s affairs, US republican senator from South Carolina Lindsey Graham said last week.

Democrat senator from New Jersey Bob Menendez said that the new initiative is “the next step in cracking down on the Kremlin” so that Putin understands that “the US will no longer put up with his behavior”.

The fact that democrats and republicans in Congress are united in this matter indicates that the new bill is highly likely to be passed, said strategist from Danske Bank Vladimir Miklashevsky.

“The market is almost 100% certain that sanctions against Russian government debt are a matter of the next few months,” he observed.

  USA, Russia, Russian banks, Sberbank