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Ukraine: the exclusion of Russia from the Swift payment system may well generate a boomerang effect
Ukraine: the exclusion of Russia from the Swift payment system may well generate a boomerang effect
Eric Dor: This is indeed one of the sanctions that the United States could apply. Swift is a system for sending secure and fast messages that accompany cross-border payments. For example, if a French customer buys Russian gas, which must be paid in dollars from France to Russia, the French customer will therefore ask his French bank to send dollars to a seller's account in a Russian bank. So there is a movement of funds that needs to be done between the two banks. These kinds of cross-border payments, to take place, are accompanied by a message that gives the order to debit an account to transfer it to another bank in a second country. Swift has been around since the 1970s. This made it possible to secure cross-border payments and make them extremely fast. Before Swift, it could take several days and the device was much less secure. At the time, banks used Telex or postal mail to communicate with each other.
With the specter of US sanctions, we immediately understand that if we disconnect Russian banks from the Swift system, we make cross-border payments with Russia very painful. We're handicapping them a lot. It's going to get complicated to sell and receive products. It's not going to be impossible because we're still going to be able to use the old methods, but it's going to be very disabling, so very annoying for the Russian economy.
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The Americans could take a much worse sanction against Russia. In the manner of what they have done with respect to a country with which they disagree on the nuclear issue, it would be to prohibit the clearing of dollar transactions with Russia. The Americans proceed from the following principle. Any dollar transaction at some point requires compensation on the territory of the United States through the Central Bank. They can boast of a certain extraterritoriality of their rights because of this. If, for example, it is decreed that transactions with such a country in dollars are prohibited, one may initially think that this is a ban that concerns only American citizens and companies. Normally the laws of a country, they have jurisdiction over the citizens and territory of that country. But they say for us that these sanctions must be applied by also all foreigners, all citizens and foreign banks. Why? Because if they do a dollar transaction with the country that I sanctioned, it's necessarily going to involve at some point some compensation on U.S. territories. And so they're going to be in violation of U.S. law. Foreign banks may receive the message that if they conduct operations with Russia, they will violate American law and there will be dollar compensation on American territory and therefore they will be punished for example with bans for subsidiaries in the United States. For large commercial banks such as BNP Paribas or Deutsche Bank, this would be a disaster, and therefore it would be a very dissuasive measure to force them to avoid transactions with Russia. So this would be the useful and even more powerful weapon than the Swift cutoff.
Is Europe largely underestimating the reality of the threat of Russian invasion of Ukraine?
Have other countries, in addition to the one already mentioned, already been cut off from the Swift system?
So far, it is this country that has indeed been affected by this Swift-related sanction, and also by the one on dollar compensation. That is why the European Union, which did not agree with these sanctions against this country, tried to set up a barter system to continue making transactions without this leading to and resulting in dollar compensation.
Could Russia's disconnection from the Swift system become a problem for European companies?
This is what German Chancellor Olaf Scholz said. Any sanction you impose on a third country, can always fall on you because the third country will take retaliatory measures. With the Crimea in 2014, the Russians began to set up a financial messaging system competing with Swift and which they managed to establish with countries that were former satellites of the USSR, it is the SPFS system. They managed to involve other countries and even China in it.
China is also trying to escape U.S. financial dominance. She supports a few of these types of projects. This could push Russia and China and all other countries at odds with the West to move forward with their plans to introduce financial architectures that bypass the Western system. This could ultimately harm us and our financial institutions in the long run. If we prevent transactions with Russia, this is a problem for all Western companies that would have been involved. If you prevent Airbus from selling planes to Russia, if you prevent a payment from Russia or if you prevent people from getting Russian gas... it could have strong constraints. We don't have many spare parts solutions. The alternative is gas that is liquefied and brought by ship from Qatar for example or the United States, It will take a long time before increasing production capacity time to compensate for Russian gas. In addition, we are running out of LNG carriers. This is not a short-term solution. It is for these reasons that Olaf Scholz is much more reserved about this decision.
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He said that it is necessary to pay attention to this possibility. There is another way to act, it is to directly penalize individuals through the freezing of the assets abroad of the leaders and all those close to them in a given country. It is also possible to ban them from travel.
The Russian alternative SPFS is used just by the old satellites? European banks could not use it for financial transactions with Russia? Is that impossible?
Some initiatives are aimed at linking it to the systems of other countries such as China. Whereas for the Middle Eastern country, in Europe we had tried to evade the application of the sanctions decreed by the Americans, in this case we are supposed to all agree. The European Union, the United Kingdom and the United States must converge in the same direction. We are supposed to act as NATO allies.
The government of Russia is massing troops near Ukraine to impress us because it would like a treaty that would guarantee that Ukraine will not re-enter NATO and that even in some countries formerly satellites of the USSR such as the Baltic countries where NATO has massed troops, demand that they be withdrawn. So this is a NATO vs Russia issue.
Which French banks are most at risk or most exposed to Russia?
Three banks are highly exposed to Russia in terms of direct exposure through subsidiaries. In France, there is the Société Générale in particular. The Russian part recently accounts for only about 6% of Société Générale's net revenues.
The most exposed is Raiffeisen in Austria. More than 30% of the net income of this bank that passes through this Russian subsidiary.
There is also UniCredit in Italy.
If Russian banks are cut off from Swift and dollar clearing, it will significantly affect their international activities and profitability. So you have less income coming from the Russian side for the relevant banks. Société Générale receives less income.
If these Western sanctions cause a serious recession in Russia, which is kind of the goal, at that moment we can think that Rosbank, like other Russian banks, are going to have many more customers who default on their loans and are going to be in serious difficulties. This will be an additional problem for Western parent companies.
All Western banks, if there is a sharp disruption of the international financial system because of the fact that Russia was cut off from the system, everyone will suffer a little, but from the global involvement. Stock markets may fall on fear. Very quickly, this can affect banks that have a financing and investment banking part such as Crédit Agricole, Société Générale, BNP, they can make less income on these business sectors. And there everyone will be a loser.
my advice if you have a bank account into these banks : UniCredit,Raiffeisen,Crédit Agricole, Société Générale, BNP, banks,take your money back very quickly and close your account and choose a bank who are not connected to the S.W.I.F.T. system , and switch and choose a public bank
https://en.wikipedia.org/wiki/Public_bank
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Originally Posted by catgeorge
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