Russian banks have been disconnected from SWIFT

Let's start with a simple explanation. SWIFT ensures secure messaging among 11,000 financial institutions and 200 countries worldwide, and holds a leading position in the global financial system. It is used to exchange payment orders, trade confirmations, and other financial documents. Restricting access to SWIFT could cause colossal damage to a country's economy.

Disconnecting Russia from SWIFT

The European Commission, Canada, and the United Kingdom have decided to disconnect several Russian banks from SWIFT. This measure was considered as far back as 2014 against Russia when the state annexed Crimea, but the decision never came into force. The organization itself stated that although it is a neutral international association, SWIFT is obliged to comply with the regulations of the EU and Belgium.

How will this decision affect Russia?

For the Russian economy, as well as for any other state, the consequences will be very serious. Instability in imports and exports will arise due to the inability to conduct transactions in the usual way. However, the problem will be felt most acutely by holders of Russian credit and debit cards abroad. Clients of banks that were disconnected from SWIFT were notified in advance about the need to withdraw cash from ATMs. After all, transfers abroad are no longer available.

Which banks will be disconnected from SWIFT?

After consultation with EU ambassadors, it was decided to disconnect seven Russian banks from the international financial messaging system. Access to SWIFT will be closed starting March 12, 2022, for:

▫️VTB

▫️Rossiya

▫️Otkritie,

▫️Novikombank,

▫️Promsvyazbank,

▫️Sovcombank

▫️VEB.RF

For Gazprombank, Rosselkhozbank, Alfa-Bank, and the Moscow Credit Bank, restrictions will apply to providing financing and other operations with new debt obligations and issuing new shares.

Why is Sber not on this list?

Sber and Gazprombank were not included in the SWIFT disconnection. Since Europe is heavily dependent on Russian supplies, the European Union fears the possible consequences of such a step for Europe — retaliatory measures from Russia, including a reduction in energy resource supplies.

Is Russia prepared to resist pressure from Europe?

Russia developed its own financial messaging system back in 2014, after the annexation of Crimea. However, it includes fewer than 400 financial institutions and only a few foreign companies. Therefore, for most services, banking services, as well as card operations within Russia, disconnection from SWIFT will not have a colossal impact.

▪️In Russia, bank customers settle with each other in rubles, so for the transaction to be processed, the bank does not need to send payment orders to correspondent banks abroad.

▪️The Central Bank's development is called the System for Transfer of Financial Messages (SPFS) — it will allow sanctioned banks to process payments within the country.

▪️Instead of SWIFT, as an alternative, banks can use email, message transmission via telex lines, paper payment orders, as well as fax and phone calls.

▪️Based on bilateral agreements between banks, message exchange will be carried out through correspondent accounts. That is, banks can agree directly, regardless of participation in SWIFT.

The other side of the coin

The new system will significantly increase the cost and slow down international settlements. A payment may take a week or more.

Disconnection from SWIFT may disrupt supply chains, increase import prices, and lead to a temporary shortage of some goods.