The US stepped up sanctions against Russia, now targeting the country’s two largest banks. The latest set of measures have the potential of inflicting more economic pain on the country than the previous round announced earlier this week.
President Joe Biden said on Feb. 24 his administration is targeting state-owned Sberbank and VTB which make up about 55% of Russia’s banking sector. This followed sanctions against Vnesheconombank (VEB Bank), a development bank, and Promsvyazbank, which services 70% of the Russian military’s defense contracts.
The sanctions mean the state-owned banks can’t do business in the US or interact with its financial system, and no American individual or entity is allowed to do business with them.
Second round of sanctions is tougher
These sanctions will be felt by the Russian people, said Edoardo Saravalle, a researcher who used to advise lawmakers in Congress on sanctions.
“There will definitely be a bank run of some sort,” Saravalle said. “In other situations—and with smaller targets—correspondent banking restrictions have been the death knell for banks.”
Russia has been trying to sanction-proof it’s economy since 2014 by building up reserves in gold and foreign currencies while reducing its debt burden, but the scale of these shocks are likely to induce panic, Saravelle added.
This doesn’t mean, however, that the US can’t pile on more sanctions. It could, for example, speed up the pace of the sanctions it has already announced–the measures against Sberbank aren’t due to kick in until the end of next month.
This story was updated on Feb. 24 with the Biden administration’s latest measures against Russia.
Correction: An earlier version of this article stated that Saravalle was a sanctions lawyer. He’s a sanctions researcher.