Truss vows to block all Russian banks from UK markets

The Foreign Secretary said new rules will stop every Russian bank and business from accessing the UK financial system.

28 February 2022

Customers of all Russian banks are set to be blocked from accessing any services in the UK under the latest plans laid out by Foreign Secretary Liz Truss.

The Secretary of State told Parliament that three further Russian banks will be added to the Government’s sanctions list, and that new legislation will also impact Russia’s largest bank, Sberbank.

She explained that the move is designed to stop three million Russian companies from accessing any foreign investment from the UK.

Ms Truss said: “Global giants like Gazprom will no longer be able to issue debt or equity in London.”

She added: “(We want) a situation where they can’t access their funds, their trade can’t flow, their ships can’t dock and their planes can’t land.”

Rishi Sunak
Chancellor Rishi Sunak blocked Russia’s central bank from accessing UK markets earlier on Monday (Justin Tallis/PA)

Selected banks will also be cut from the Swift international money transfer system, as politicians look to announce a total ban from Russian banks using the service.

The three named banks immediately added to the sanctions list are Russia’s national development bank – VEB; the third largest privately owned financial institution in Russia – Sovcombank; and one of Russia’s largest commercial banks – Otkritiye.

It comes as Ukraine said it would launch its own so-called war bonds to raise funds for its war efforts and analysts suggested Russia could default on its loan obligations as a result of the economic squeeze on the country.

Earlier in the day, Chancellor Rishi Sunak confirmed the UK Government will match new sanctions imposed by the US and the EU over the weekend by preventing Russian central banks from accessing cash in the UK.

The move by the UK, the US and the EU means the Central Bank of the Russian Federation (CBR), the Russian National Wealth Fund and the Ministry of Finance of the Russian Federation will struggle to access cash reserves.

It led to the rouble dropping more than 20% against the dollar and could have fallen further if not for the central bank raising interest rates from 9.5% to 20% on Monday.

Andrew Bailey
Bank of England governor Andrew Bailey (Dan Kitwood/PA)

Deutsche Bank strategist Jim Reid said the moves were turning the conflict into a “financial war”.

He said: “Not only are most Russian banks now to be excluded from Swift but the Russian Central Bank’s reserves have now been effectively frozen.

“At the last recorded data in June 2021, Russia had around 630 billion dollars of foreign reserves of which a large (majority) portion still likely resides directly (or indirectly via correspondent banks) with G10 banks and central banks.

“This is in effect a financial war now.”

Central banks typically hold reserves overseas in dollars and other major global currencies.

The sanctions mean Moscow cannot access those funds which the central banks could have used to prop up the country’s currency.

They also cannot issue new government bonds to raise fresh money because international investors are unable, or unlikely, to take on Russian debt.

Mr Sunak said: “These measures demonstrate our determination to apply severe economic sanctions in response to Russia’s invasion of Ukraine.

“We are announcing this action in rapid co-ordination with our US and European allies to move in lock step once more with our international partners, to demonstrate our steadfast resolve in imposing the highest costs on Russia and to cut her off from the international financial system so long as this conflict persists.

The governor of the Bank of England, Andrew Bailey, said: “The Bank of England continues to take any and all actions needed to support the Government’s response to the Russian invasion of Ukraine.

(PA Graphics)

“We welcome the steps taken today by the UK Government, in co-ordination with EU and US authorities, as an important and powerful demonstration of the UK’s commitment to the international rule of law.”

The new rules also stop anyone in the UK processing any financial deals or transactions for the Russian central bank and wealth funds or various Russian banks.

It stops Russian companies from raising fresh money from international investors to refinance debt – although few are in desperate need to renew their bonds, which typically run for several years before needing to be repaid.

All eyes are on Russia’s energy sector and whether sanctions could be imposed on the industry.

The EU still relies heavily on Russian gas and oil, with gas prices up 20% on Monday and oil back above 100 dollars a barrel, having fallen at the end of last week below the psychological milestone.

The Bank of England will also be closely monitoring the situation to see what impact it could have on inflation, with some economists predicting it could rise higher than current predictions of 7.5% and stay above 6% for the rest of the year.

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