Customers of all Russian banks are expected to be barred from accessing all services in the UK under the latest plans drawn up by Foreign Secretary Liz Truss.
The state secretary told parliament that three more Russian banks will be added to the government’s sanctions list and that the new legislation will also impact Russia’s largest bank, Sberbank.
She explained that this decision was aimed at preventing three million Russian companies from accessing any foreign investment from the United Kingdom.
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 commerce can’t flow, their ships can’t dock and their planes can’t land.”
Some banks will also be barred from the Swift international money transfer system, as politicians seek to announce a complete ban on Russian banks using the service.
The three named banks immediately added to the sanctions list are the National Development Bank of Russia – VEB; the third largest private financial institution in Russia – Sovcombank; and one of the largest commercial banks in Russia – 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 due to economic pressure on the country.
Earlier today, Chancellor Rishi Sunak confirmed that the UK government will align with new sanctions imposed by the US and EU over the weekend by blocking Russian central banks from accessing cash UK.
The decision by the UK, US and EU means that the Central Bank of the Russian Federation (CBR), the Russian National Wealth Fund and the Ministry of Finance of the Russian Federation will find it difficult to access cash reserves.
This led the ruble to fall more than 20% against the dollar and could have fallen further if the central bank had not raised interest rates from 9.5% to 20% on Monday.
Deutsche Bank strategist Jim Reid said the moves were turning the dispute into a “financial war”.
He said: “Not only are most Russian banks now going to be kicked out of Swift, but the Russian Central Bank’s reserves have now been effectively frozen.
“As of last recorded data in June 2021, Russia had about $630 billion in foreign exchange reserves, of which a large part (the majority) probably still resides directly (or indirectly via correspondent banks) with G10 banks and central banks.
“It’s actually a financial war now.”
Central banks typically hold foreign reserves in dollars and other major world currencies.
The sanctions mean that Moscow cannot access funds that central banks could have used to support 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 tough economic sanctions in response to Russia’s invasion of Ukraine.
“We are announcing this action in swift coordination with our American and European allies to once again move forward in step with our international partners, to demonstrate our unwavering determination to impose the highest costs on Russia and to cut it off from international finance. . system as long as this conflict persists.
Bank of England Governor Andrew Bailey said: “The Bank of England continues to take all necessary steps to support the Government‘s response to the Russian invasion of Ukraine.
“We welcome the steps taken today by the UK government, in coordination 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 prevent anyone in the UK from processing transactions or financial transactions for Russia’s central bank and wealth funds or various Russian banks.
This prevents Russian companies from raising fresh money from international investors to refinance their debt – although few are desperate to roll over their bonds, which usually last for several years before having to be repaid.
All eyes are on Russia’s energy sector and whether any 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 a barrel, after falling below the psychological direction.
The Bank of England will also be watching the situation closely to see what impact it could have on inflation, with some economists predicting it could rise more than the current forecast of 7.5% and stay above 6% for the rest of the year.