The European Union is finally going after Sberbank, the Russian banking juggernaut

Brussels decided on Monday to exclude Russia’s Sberbank from the SWIFT network. A penalty that affects an exceptional financial institution in more than one way. But its efficacy has not yet been proven.

Sberbank, finally. Much has been said about the European decision taken on Tuesday, May 31st, to impose a partial embargo on Russian oil imports. So much so that at the same time by 27, another penalty was almost unnoticed: the penalty for excluding Russia’s Sberbank from the Swift interbank network.

However, this decision was made more than three months after the first wave of sanctions against seven Russian banks banned from Swift (VTB Bank, Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank and Development Bank of the Russian Federation) by distant Brussels. Far from a trifle. Indeed, “the EU sanctions regime has remained largely discredited as long as Sberbank is not included in it,” asserts Nicholas Veron, an economist at the Peterson Institute for International Economics in Washington and co-founder of the European think tank Bruegel.

Bank “Babushkas”

By excluding a bank from the Swift network – the main international interbank platform for recording and sending transaction orders – the goal is to make it very difficult for that bank’s clients to do business internationally. It’s a way of trying to cripple a country’s business.

However, this weapon is only really effective “if there is no hole in the machine because otherwise, bank customers who are excluded from the machine would only have to open an account at another institution that is still integrated into the Swift network,” said Tyler Kostra, an efficacy specialist. Economic Sanctions University of Birmingham.

>> To read also: “What Swift can Russia be excluded from?”

As long as Sberbank continued to use the Swift system, there was no loophole in the European penal system but the Mariana Trench. Indeed, this bank occupies a special place in the Russian landscape, both historically and financially. Nicholas Veron asserts: “There is no real equivalent, in another country, to such a dominant bank.”

The institution is the direct heir of the bank, which had a monopoly on deposits from individuals during the Soviet era. As such, Sberbank entered the era of unbridled Russian capitalism in the 1990s with a serious advantage of 100 million customers and 16,000 branches throughout Russia. “It was and is Babushkas Bank,” summarizes Sergey Popov, a specialist in Russian economics at Cardiff University. This is the bank that ordinary Russians use.

A historic institution that allows Sberbank to manage “almost a third of all assets held by banks in Russia,” Tyler Kostra identifies. So the European Union is attacking a Russian financial giant, which also affects the international arena: Sberbank was thus among the 30 largest European banks before the war, although it had already been subject to international sanctions since the end of the war. 2014 Russian Invasion of Crimea.

Various activities

Sberbank also has a very special place in the economic landscape. Officially, the bank was privatized in 1991, but the main shareholder in it is … the Central Bank of the Russian Federation. “There is no other country in the world where the central bank actually owns one of the country’s largest commercial banks. This is not only a conflict of interest, but also a position that allows Sberbank to play a role in the country’s economy,” said Lagos Pokros, former Hungarian Finance Minister, in an opinion piece. Published by the Financial Times “Monetary Policy”.

Nothing new in the country from the mixture of genres, between private and public interests, critics of the system that was put in place under Vladimir Putin can say. Especially since the post of head of Sberbank was taken over by the Russian president in 2007, Hermann Gref, who had been Minister of Trade since 2000.

However, Sberbank is not subject to political power as one might think. The Financial Times asserts that “Hermann Greve has done everything in his power to improve the credibility of this institution on the international stage.” The CEO also tried to modernize this old lady by diversifying her activities. From now on, Sberbank also operates a “TV box, smart speaker, e-commerce, e-education and even telemedicine services,” assures Les Echos business daily.

Hermann Gref even brought Alexei Navalny to the board of the bank’s minority shareholders. “It’s one of the few places in Russia where everyone works for the state without avoiding me like the plague,” a famous political opponent of Vladimir Putin told the Financial Times in 2018.

Is it for the sake of this relative (extremely) independence that Sberbank has spared European sanctions since the start of the war in Ukraine? Maybe a little. But another reason may be the economic importance of the bank. “It is possible that Brussels has waited as long as possible to allow European exporters to continue doing business with customers in Russia who have accounts with Sberbank,” said Nicholas Veron.

Penalty limits

Brussels also wanted to keep the cartridges in reserve. “This is called an escalation of sanctions,” stresses Sergey Popov. “The EU did not punish all banks at the same time so that it could brandish the threat of permanently causing more damage to the Russian economy.” Not forgetting that “politicians like to come in front of the cameras to make sure they act. That is why they always keep institutions in reserve even if they are not the most economically efficient,” Tyler Kostra laments.

Indeed, by always leaving holes in the system in this way – Alfa Bank (the main Russian private bank) still has access to Swift, for example – it gives the oligarchic Brussels and large Russian groups time to organize their financial flows.

Also, “At this point, there aren’t really any Russian companies that are exporting or importing anyway. Cutting off Sberbank from the Swift network wouldn’t do much harm to Russian citizens who have checking accounts at that bank because they don’t really need to conduct transactions. International ”, notes Sergey Popov.

Getting a bank fired from Swift is certainly effective, but it’s not a death sentence. Nicholas Veron recalls that the seven Russian banks that were sanctioned in February “also suffered a blow from blocking measures such as bans, on European players, from conducting transactions with clients of these institutions.” This is not the case for Sberbank.

Thus there will be “hundreds of small exporters who will likely be affected because finding substitutes is too complicated for them”, asserts this economist. But for large groups or large contracts, there will always be a way to circumvent this penalty … for example by going through another bank, especially in China, which agrees to verify transactions with Sberbank without resorting to Swift.

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