Are U.S.–Russia Tensions Heating Up? Reuters Reports Russia May Bar Firms from Using Foreign Banks

Despite the ongoing proxy war between the U.S. and Russia in the Ukraine, as well as financial tensions that have been simmering between the two nations for quite some time, I was still surprised to see the following headline from ReutersRussia Mulls Barring Firms from Using Foreign-owned Banks.

If this actually happens, it would be a very big deal, and certainly an escalation in the friction between these two geopolitically crucial nations.

Submitted by Michael Krieger, Liberty Blitzkrieg:

We learn from Reuters that:

MOSCOW, June 24 (Reuters) – Russia is considering banning state companies and other strategically important firms from holding accounts at foreign-owned banks, a governmental source familiar with the proposals told Reuters on Tuesday.

“Such an idea is lingering, but there is no decision about it as yet,” the source said.

Analysts doubted that the plan would be adopted, saying it would be highly damaging for Russia’s investment climate and would face opposition from major companies.

Earlier on Tuesday Russia’s Kommersant newspaper reported that the Finance Ministry had prepared legal amendments that would bar state companies, as well as strategically important private firms.

The Finance Ministry declined to comment.

Under the proposals, all state-owned companies would be allowed to have accounts only at Russian state-owned banks, or at privately-owned Russian banks with capital of at least 16.5 billion roubles ($483 million), Kommersant reported.

The restrictions would also apply to privately-owned companies that were significant for Russia’s defence or security, as defined by an existing law on foreign investment in strategic companies.

“Definitely this would decrease the attractiveness for foreign investors in the banking sector, because a large part of Russian companies are deemed strategic and this is increasingly so,” said Vladimir Osakovsky, chief Russia economist at Bank of America Merrill Lynch.

“Let’s see if it will be approved or not. I think it is unlikely because it is a negative move from the investment climate perspective.”

Russia has been mulling steps to reduce its vulnerability to Western sanctions over the Ukraine crisis, which has raised fears that Western countries could freeze Russian assets abroad.

Because of the negative implications to the global economy, and Russia in particular, I doubt this will be adopted in the near future. However, the fact that this idea is even being circulated, is important in its own right.

Full article here.

In Liberty,
Michael Krieger