Much of the World Wants to Kick Russia Off the Financial Grid. Here's What's Stopping That From Happening.

Among the flurry of sanctions and repercussions surrounding Vladimir Putin’s invasion of Ukraine and the loss of lives that has followed, global calls to break Russia from the global financial system are growing.

Though the U.S. has sanctioned five Russian banks, including Sberbank and VTB, which collectively account for about half of the country’s banking assets, there’s another issue at play: blocking Russia from SWIFT. The cooperative is considered a communication backbone of the global financial system, with more than 11,000 users across the world.

Ukraine Foreign Minister Dmytro Kuleba “will not be diplomatic on this,” he said in a tweet this week. “Everyone who now doubts whether Russia should be banned from SWIFT has to understand that the blood of innocent Ukrainian men, women and children will be on their hands too.”

U.S. President Joe Biden said this week that a Russian ban from SWIFT wasn’t a position that the rest of Europe seeks to take. SWIFT is overseen by G-10 central banks, but is incorporated in Belgium and complies with European Union regulation. “Whilst sanctions are imposed independently in different jurisdictions around the world, SWIFT cannot arbitrarily choose which jurisdiction’s sanction regime to follow,” the cooperative explains on its website.

Meanwhile there’s disagreement in Europe, with U.K. Prime Minister Boris Johnson pushing for the move during a call with G-7 leaders. Canadian Prime Minister Justin Trudeau also supported the step, the Financial Times reported. However, German Chancellor Olaf Scholz voiced reservations. A government spokesperson told Reuters that there would be a big impact on transactions for German businesses, while Italy has its own complications.

A list of hold-ups around the world include:

• A concern that Russia -- and China -- will expand alternatives to SWIFT.
• The threat to the energy supply in Europe given SWIFT is used for payments for Russian natural gas.
• The nearly $190 billion of trade between Russia and the EU that’s put at risk, with Germany being the largest trading partner, according to Bloomberg Intelligence. Russia relies on SWIFT to settle dollar-denominated bills, and is the largest exporter of oil and gas.
• The ability to track payments across sanctioned entities and individuals.

A number of U.S. lawmakers have supported cutting Russia off from SWIFT, though the country is more likely to stick to a more diplomatic approach than four years ago, when sanctions on Iran ultimately forced that nation off the network.

“That was pushed mainly by the U.S.,” Clay Lowery, executive vice president at the Institute of the International Finance, told Bloomberg Television. He said the difference is that, this time, the country is working closely with European allies. “The U.S. is trying to do this through diplomatic pressure, not unilateral pressure.”

Paolo Gentiloni, the EU economy commissioner, said that he and the ECB have been asked to look at how the move would affect the intended target, “more than backfiring to our economies,” he told Bloomberg Television. “We are considering also the possibility to use this tool, but this needs a little more of looking in depth.”

More on Wall Street

• The yield curve is flattening dramatically. The spread between two-year and 10-year U.S. yields has fallen to levels not seen since the pandemic’s surge in 2020. It’s renewing worries about a recession.
• Goldman added 3 million clients to its consumer business this week as the GM card portfolio converted to the bank, bringing the unit’s total customer base to 13 million.
• “There’s a larger total addressable market than the rest of Goldman Sachs,” said Stephanie Cohen, co-head of consumer and wealth management. “We don’t have any other business inside of Goldman Sachs that’s more than 13 million customers.” Here’s her full interview, where she also speaks to Goldman's expansion in Florida, Atlanta and Dallas.
• Citadel CEO Ken Griffin, along with historian Niall Ferguson, urged in a Wall Street Journal op-ed that the U.S. and European countries wean themselves off dependence on Russian energy.
• “Oil and gas just became much more geopolitically and economically strategic… at least for the next few years,” Dan Pickering of Pickering Energy Partners wrote in a note this week. “Political and investor tone and attitude toward the oil and gas industry will become less adversarial and more supportive.”
• The new CIO of Calpers will look to take more stakes in private companies, getting more control and slimming down fees paid to managers, people familiar with the matter told Bloomberg.
• Traders and engineers are expanding a market for cryptocurrency derivatives to help clients trade assets without actually holding digital assets.

More to come. Hoping you have a restful weekend before things get very busy once again -- with next week including the first investor day under Citigroup CEO Jane Fraser on March 2. Please join us for coverage, and send all tips and ideas to [email protected].