World
Valentin Katasonov
March 19, 2014
© Photo: Public domain

Russia is constantly threatened with sanctions to be imposed «if it does not make last minute concessions on Crimea», according to German Foreign Minister Frank-Walter Steinmeier. Former head of FRS Alan Greenspan suggested using economic war tactics such as targeting Russia’s stock market. A range of measures called «Bank war» is up for consideration. If the decisions in Washington are taken by responsible people, it would be logical to assume they won’t do it because a bank war between the United States and Russia would be like exchanging nuclear strikes – a «no win, no gain» option.

* * *

There are many factors to influence the outcome of war. The International Investment Position has an important role to play here. It is an index normally calculated by central banks of many countries to display the correlation between external assets and liabilities of a country. Here is the data on the International Investment Position of Russia as of October 1, 2013: 

Russia’s International Investment Position on October 1 2013 ($billion)

Assets

Russianassetsabroad

ForeignassetsinRussia

Net International Investment Position

Total

267,92

276,57

-8,65

Direct Investment

13,19

36,06

-22,87

Portfolio Investment

37,34

41,42

-4,08

FinancialDerivatives

5,74

4,51

+1,23

Other Investment

211,67

194,59

+ 17,08

Loans

62,73

0,92

+61,81

Currency accounts and deposits

132,33

189,49

-57,16

As one can see the foreign assets of Russian banks exceed the foreign banks assets in Russia by 8, 65 $billion. It means Russia has nothing to fear at the first stage of such a war if declared by Washington. Nevertheless, the estimations are rather approximate and two factors should be taken into account here: 

– What countries aside from the United States could take part in «combat» actions against Russia? 

– What Russian assets are to be targeted by the US? 

According to the Bank of Russia, 80% of Russian assets are invested in eight countries: the United States, Great Britain, Germany, Cyprus, the Netherlands, Switzerland, France and Italy. The largest part of Russian banks current assets (deposits, credits, accounts and currency) is invested not in the United States, as many believe it is, but in Great Britain. As to the Bank of Russia, 13, 6% of Russian banks’ assets are invested in the USA and 26, 4% – in the United Kingdom. It means that there is a slight chance the US would start the war at all without the support of Great Britain. And as the events unfold, London is not in a rush to join the US-led adventure over Crimea. 

It should be noted that until now the US limited sanctions imposed on other states to freezing their deposits and accounts in national banks and the banks of allied states. As a rule, direct and portfolio investments, as well as loans have been immune to punitive actions. The «current accounts and deposits» index is Russia’s strong point with minus $57 billion making Russia’s adversaries be in red with the net loss equal to this very sum. The Bloomberg news agency makes the same conclusion in its report published on Match 7 which says that the US and European banks may suffer as a result of financial sanctions imposed against Russia. The report refers to the Bank for International Settlements (BIS), which states that, as of September 2013, Russia’s natural persons and legal entities kept $160 billion in the banks of 44 countries. In case the assets are frozen, Russia would refuse its liabilities. As of September 2013, foreign banks lent the country at least $242 billion, nearly double its estimated assets in the West (BIS data on 24 countries). As a result, the Bloomberg states, US and European banks will be the first to suffer from the sanctions. France (over $50 billion invested in Russia) and the United States (over $35 billion lent) will be more severely hurt followed by Italy, Germany and Great Britain. The Bloomberg agency refers to the BIS figures which differ a bit from the ones adduced in the chart, but the conclusion is the same. The West has too much too lose by launching a bank war against Russia… To the point, the calls for denying liabilities in case national foreign assets are frozen have already been voiced among the ranks of Russian elite’s influential personalities. 

***

Now a few words about the methods used for waging the war, like, for instance, blocking international settlements of banks. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) plays a crucial role here. SWIFT is a co-operative organization which belongs to its members and is dedicated to the promotion and development of standardized global interactivity for financial transaction. It operates according to Belgium law. At present SWIFT links more than 10000 financial institutions, including around 1000 corporations. It exchanges yearly an average of over 2, 5 billion messages, the daily transaction are equal to around $6 trillion. 

After the 9/11 the CIA and the US Treasury got access to the financial information through SWIFT. Washington even tried to block operations of separate banks using the Society; no matter it is a private, non-US entity. It has become harder to meddle into its activities recently. True in 2012 the US managed to make SWIFT unlink Iranian banks, but Iran had been prepared for the action (SWIFT had given an advance warning a few months before the measure was introduced). There was a precedent with unclear results. Iranian banks have managed to get around SWIFT using go-betweens. It’s a bit more costly and slow, but it can be done. Iran has also refused to use the dollar for settlements, something to evoke US concern. 

Over Russian 600 banks are connected to SWIFT. Russia is the second largest SWIFT user after the United States. CNews, a well-known Russian media outlet, conducted a survey among Russian bankers about the possibility of sanctions regime and the connected risks, including blocking international settlements. Respondents believe the United States cannot curtail the access to SWIFT from Russia directly because the organization’s headquarters is located in Belgium. CNews experts don’t believe that Russian banks will be disconnected from SWIFT because neither the organization itself, nor large Western corporations doing business in Russia, will gain as they won’t be able to transfer money from the country. Nevertheless, even if it happens, the banks could still use correspondent accounts of their partners in Europe and the United States or go around the ban with the help of TARGET, SEPA and other systems outside the United States jurisdiction. It will even give an additional impulse to give up the dollar as a currency for international settlements. 

The views of individual contributors do not necessarily represent those of the Strategic Culture Foundation.
Bugaboo Stories about Bank War against Russia

Russia is constantly threatened with sanctions to be imposed «if it does not make last minute concessions on Crimea», according to German Foreign Minister Frank-Walter Steinmeier. Former head of FRS Alan Greenspan suggested using economic war tactics such as targeting Russia’s stock market. A range of measures called «Bank war» is up for consideration. If the decisions in Washington are taken by responsible people, it would be logical to assume they won’t do it because a bank war between the United States and Russia would be like exchanging nuclear strikes – a «no win, no gain» option.

* * *

There are many factors to influence the outcome of war. The International Investment Position has an important role to play here. It is an index normally calculated by central banks of many countries to display the correlation between external assets and liabilities of a country. Here is the data on the International Investment Position of Russia as of October 1, 2013: 

Russia’s International Investment Position on October 1 2013 ($billion)

Assets

Russianassetsabroad

ForeignassetsinRussia

Net International Investment Position

Total

267,92

276,57

-8,65

Direct Investment

13,19

36,06

-22,87

Portfolio Investment

37,34

41,42

-4,08

FinancialDerivatives

5,74

4,51

+1,23

Other Investment

211,67

194,59

+ 17,08

Loans

62,73

0,92

+61,81

Currency accounts and deposits

132,33

189,49

-57,16

As one can see the foreign assets of Russian banks exceed the foreign banks assets in Russia by 8, 65 $billion. It means Russia has nothing to fear at the first stage of such a war if declared by Washington. Nevertheless, the estimations are rather approximate and two factors should be taken into account here: 

– What countries aside from the United States could take part in «combat» actions against Russia? 

– What Russian assets are to be targeted by the US? 

According to the Bank of Russia, 80% of Russian assets are invested in eight countries: the United States, Great Britain, Germany, Cyprus, the Netherlands, Switzerland, France and Italy. The largest part of Russian banks current assets (deposits, credits, accounts and currency) is invested not in the United States, as many believe it is, but in Great Britain. As to the Bank of Russia, 13, 6% of Russian banks’ assets are invested in the USA and 26, 4% – in the United Kingdom. It means that there is a slight chance the US would start the war at all without the support of Great Britain. And as the events unfold, London is not in a rush to join the US-led adventure over Crimea. 

It should be noted that until now the US limited sanctions imposed on other states to freezing their deposits and accounts in national banks and the banks of allied states. As a rule, direct and portfolio investments, as well as loans have been immune to punitive actions. The «current accounts and deposits» index is Russia’s strong point with minus $57 billion making Russia’s adversaries be in red with the net loss equal to this very sum. The Bloomberg news agency makes the same conclusion in its report published on Match 7 which says that the US and European banks may suffer as a result of financial sanctions imposed against Russia. The report refers to the Bank for International Settlements (BIS), which states that, as of September 2013, Russia’s natural persons and legal entities kept $160 billion in the banks of 44 countries. In case the assets are frozen, Russia would refuse its liabilities. As of September 2013, foreign banks lent the country at least $242 billion, nearly double its estimated assets in the West (BIS data on 24 countries). As a result, the Bloomberg states, US and European banks will be the first to suffer from the sanctions. France (over $50 billion invested in Russia) and the United States (over $35 billion lent) will be more severely hurt followed by Italy, Germany and Great Britain. The Bloomberg agency refers to the BIS figures which differ a bit from the ones adduced in the chart, but the conclusion is the same. The West has too much too lose by launching a bank war against Russia… To the point, the calls for denying liabilities in case national foreign assets are frozen have already been voiced among the ranks of Russian elite’s influential personalities. 

***

Now a few words about the methods used for waging the war, like, for instance, blocking international settlements of banks. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) plays a crucial role here. SWIFT is a co-operative organization which belongs to its members and is dedicated to the promotion and development of standardized global interactivity for financial transaction. It operates according to Belgium law. At present SWIFT links more than 10000 financial institutions, including around 1000 corporations. It exchanges yearly an average of over 2, 5 billion messages, the daily transaction are equal to around $6 trillion. 

After the 9/11 the CIA and the US Treasury got access to the financial information through SWIFT. Washington even tried to block operations of separate banks using the Society; no matter it is a private, non-US entity. It has become harder to meddle into its activities recently. True in 2012 the US managed to make SWIFT unlink Iranian banks, but Iran had been prepared for the action (SWIFT had given an advance warning a few months before the measure was introduced). There was a precedent with unclear results. Iranian banks have managed to get around SWIFT using go-betweens. It’s a bit more costly and slow, but it can be done. Iran has also refused to use the dollar for settlements, something to evoke US concern. 

Over Russian 600 banks are connected to SWIFT. Russia is the second largest SWIFT user after the United States. CNews, a well-known Russian media outlet, conducted a survey among Russian bankers about the possibility of sanctions regime and the connected risks, including blocking international settlements. Respondents believe the United States cannot curtail the access to SWIFT from Russia directly because the organization’s headquarters is located in Belgium. CNews experts don’t believe that Russian banks will be disconnected from SWIFT because neither the organization itself, nor large Western corporations doing business in Russia, will gain as they won’t be able to transfer money from the country. Nevertheless, even if it happens, the banks could still use correspondent accounts of their partners in Europe and the United States or go around the ban with the help of TARGET, SEPA and other systems outside the United States jurisdiction. It will even give an additional impulse to give up the dollar as a currency for international settlements.