Russian banks plan interim solution to temporary sanctions: sources

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By Darya Korsunskaya, Elena Fabrichnaya and Tatiana Voronova

MOSCOW (More Bank) – Major Russian banks are preparing plans to help each other maintain at least short-term access to the global financial system in case they are hit by new US sanctions, sources told More Bank close to the file.

Sberbank, VTB, Gazprombank and others are currently exploring the possibility of giving each other access to US dollars or other major currencies using correspondent accounts, said the same sources.

Banks have access to financial services in different jurisdictions and provide cross-border payment services to customers in various currencies through correspondent banking relationships.

The new system, which banks began to develop with the Ministry of Finance and the Russian Central Bank last year, would have little chance of running indefinitely, but it could help avoid panic if one or more large Banks are cut off from dollar transactions.

Last year, US lawmakers drafted a sanctions bill proposing cutting some of the largest Russian banks from the US dollar, citing Sberbank, VTB, Gazprombank, Russian Agricultural Bank, Promsvyazbank, VEB and Bank of Moscow .

This has not come into force and recently another has been proposed, without mentioning specific banks.

But Russian banks are still afraid of being sanctioned and have therefore started to develop an emergency plan.

"Every major bank has a detailed plan of what should be done in a given situation – the first month is defined day by day, or hour by hour," said a senior finance official.

The central bank and Gazprombank declined to comment. The Ministries of Finance, Sberbank, VTB, Promsvyazbank, VEB and Russian Agriculture Bank did not respond to requests for comments.

The two biggest threats to the banking sector in Russia are cut off from the SWIFT banking messaging system and the loss of access to foreign currencies, which they generally obtain from US banks through matching accounts.

In case of closure of SWIFT, Russia already has its own system, which it upgrades.

And for foreign currencies, a number of options exist, according to sources, among which is a senior state banker, a well-placed industry executive, a senior manager, and a senior executive. big bank and an individual in a foreign bank.

TEMPORARY FIXATION

The main option is based on at least one major Russian bank avoiding sanctions and allowing access to foreign exchange through correspondence accounts with major foreign banks.

Other Russian banks would create or improve existing correspondent accounts with this bank to transfer money.

Publicly available documents show that VTB has correspondent accounts with Sberbank and VEB, while the Russian Agricultural Bank has accounts with VEB, VTB, Gazprombank, Sberbank and several other Russian banks.

VEB has such accounts at Sberbank and Gazprombank.

Sberbank, VTB, VEB, Gazprombank and Russian Agriculture Bank also have correspondent accounts with the central bank.

However, most of these accounts are denominated in rubles, with only a handful in US dollars and euros.

"This would allow them to move the dollars between them by bypassing a matching account," the source told a foreign bank, adding that to ensure the backup, a chain bank would need a US dollar matching account in a US bank, because it would always be necessary to make external settlements, which would require a bridge.

Correspondent accounts would complicate the monitoring of currency transfers between banks, making them more difficult for foreign authorities to spot, said a former central bank official.

Such an arrangement would represent a "temporary solution" that could last three or four months and give banks time to find an alternative, while reassuring customers.

And a spike in foreign currency transactions by banks that had not been sanctioned and that dealt with the correspondent bank abroad would probably raise suspicions.

Other options include the central bank providing currency to a "clean bank", which would then distribute them to their peers via correspondent accounts, sources said.

Alternatively, a sanctioned bank could use correspondent accounts directly with the central bank, although this would increase the risk that the central bank itself would be sanctioned and therefore unlikely, the sources said.

(Additional reports by Oksana Kobzeva, Polina Nikolskaya, Anton Zverev, Tatyana Voronova, Andrey Ostrukh and Katya Golubkova, written by Katya Golubkova, edited by Rachel Armstrong and Alexander Smith)