So sanctions could harm Russian banks

Frankfurt Sanctions, credit risks, cyber attacks: the recent escalation of the Ukraine crisis is stoking fears of a destabilization of the international banking system. US President Joe Biden announced new sanctions on Tuesday evening. The punitive measures will target two major banks, as well as supporters of Russian President Vladimir Putin and their families.

Biden also wants to ban US banks from trading in Russian government bonds, thereby cutting off Moscow’s access to Western capital markets. The US government had already banned US financial institutions from trading in government bonds on the primary market last year, but not on the important secondary market.

The Russian banks affected are the state development bank VEB and PSB, which plays a central role in Russia’s defense industry, the US Treasury Department said. Both institutes would now be cut off from the American financial system, and all assets under US jurisdiction would be frozen. It would thus become more difficult for Moscow to finance the actions in Ukraine.