Yahoo Finance Sanctions spark Russia bank run fears as country braces for ‘free fall’ in rouble
The Kremlin is scrambling to stave off a run on Russian banks after Western nations announced a barrage of punishing sanctions.
Russia's central bank was also reportedly bringing in new measures to prevent a sell-off of Russian securities. According to Reuters, central bank documents showed that it had ordered market players to reject foreign clients' bids to sell Russian securities from early Monday morning.
The step came after the central bank on Sunday said it would provide unlimited funds to the country’s lenders and dramatically expand eligibility for loans as it was forced to reassure citizens that bank cards would continue to work normally.
Russians were yesterday racing to cashpoints and there were reports of the machines running out of banknotes. Russian economist Vladislav Zhukovskiy said “panic has started”.
He said: “All over the country there are queues at ATMs to withdraw money. Banks are selling the dollar at 100 to 120 roubles! Where are [central bank chief] Elvira Nabiullina and [prime minister] Mikhail Mishustin?”
Customers at the state-owned Sberbank received alerts on Sunday morning informing them that banking services were “operating normally” and that clients would be able to access their savings. The message made no mention of the sanctions.
In Khimki, outside Moscow, a queue trailed through a shopping mall of dozens of people waiting to use a cash machine. Similar scenes were playing out across the country.
Foreigners in Moscow reported being asked to settle their hotel bills before they left over fears their credit cards would no longer work next week.
Bill Ackman, the billionaire US hedge fund manager, wrote on Twitter: “If I were Russian, I would take my money out now. Bank runs could begin in Russia on Monday.”
Elina Ribakova, the deputy chief economist at the Institute of International Finance, said: “Bank runs have started from the very first day of sanctions and have accelerated over the weekend.”
The price of foreign currency in Russian cities soared on Sunday, with many lenders selling dollars for more than 100 roubles, compared to 83.8 roubles on Friday. Russian bank Tinkoff was charging more than 150 roubles for a dollar.
A Western coalition of the UK, US, EU and Canada said on Saturday night they would freeze the Russian central bank’s overseas assets and cut certain Russian banks off from the Swift system for international payments, in the heaviest sanctions to date against Vladimir Putin’s regime.
Japan yesterday said it would join the move to disconnect Russia from Swift.
The measures are expected to send the rouble tumbling on Monday morning, as asset restrictions limit the Bank of Russia’s ability to continue propping up the currency. Russia has $630bn (£470bn) in foreign reserves, a large portion of which is held overseas.
Social media users shared videos of long lines forming at cash points from dawn in Moscow and individuals waiting for empty machines to be refilled amid concerns that digital payments may stop working.
Russia forced to consider drastic steps
Economists at Evercore said that the sanctions could encourage Russia to introduce capital controls such as limiting withdrawals and the conversion of roubles into foreign currencies.
“These are actions designed to stop the ability of the CBR to support the value of the rouble and limit their support [of] other actors’ imports and debt repayments. The odds Russia turns to capital controls are increasing rapidly,” they said.
Russia’s central bank announced that it would take a series of drastic steps on Monday morning that will effectively pump unlimited liquidity into the country’s financial system.
“The Bank of Russia has the necessary resources and tools to maintain financial stability and ensure the operational continuity of the financial sector,” it said.
The central bank said Monday’s repo auction, in which it lends central bank funds out to lenders, would have no limit, having increased the limits in recent days. It also said it would expand the “Lombard list”, the type of collateral it is willing to accept, “in order to cover the possible needs of banks in current liquidity to the maximum”.
The bank sought to reassure Russians that the banking system would remain operational.
“The Russian banking system is stable, has sufficient capital and liquidity to function smoothly in any situation. All customer funds on the accounts are saved and available at any time,” it said.
“Banking services are provided as usual. Bank cards of all banks in Russia also continue to work normally.” Last week, the Bank of Russia intervened in the currency markets for the first time since 2014 in an attempt to lift the rouble.
Markets are braced for a new round of turbulent trading on Monday in response to Mr Putin putting nuclear forces on alert and Germany outlining a dramatic expansion of military spending.
White House officials said sanctions announced over the weekend were designed to send the rouble into “free fall” and send prices in Russia soaring.
William Jackson, chief emerging markets economist at Capital Economics, said: “I think it's very plausible that it could be another day like last Thursday, when the rouble fell by 8pc. It could fall even further. These [queues outside ATMs] are clearly worrying signs and the central bank's response shows that they're concerned about trying to make sure there's as much liquidity in the system as possible.”
Mykhailo Fedorov, Ukraine’s deputy prime minister and digital minister, urged cryptocurrency exchanges to cut off Russia amid fears that digital assets could be a way to escape sanctions. He said: “I'm asking all major crypto exchanges to block addresses of Russian users.
“It's crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.”