Bankers Must Stand Up in the Fight for Ukraine’s Victory

When it comes to Russia’s ongoing war of choice in Ukraine, the debate on the future of Russia’s immobilised central bank assets has become increasingly self-defeating as political leaders and bankers conspire to construct roadblocks and excuses for inaction. This is just one of the indicators of the wilting support from political leaders for Ukraine – they offer warm words, but critical supplies of weaponry and funding are becoming increasingly rare. It is as if Ukraine’s allies favour the country’s survival over its victory.

The supposed difficulties in seizing the Central Bank of Russia’s (CBR) assets have been well rehearsed. First, no one knew where they were. Then there were concerns about sovereign immunity and various other legal hurdles. And lastly, there were worries from central bankers and finance grandees that other central banks might ‘turn their back’ on and diversify away from the euro, and that markets would be volatile. It is this third excuse that I would like to address.

We are, of course, in unprecedented times. But matters of trust in the euro and market volatility are nothing new. Think back to the Global Financial Crisis in 2008 and the euro debt crisis in the years that followed. In both cases, a loss of trust in markets and those that steward them (both central banks and commercial and investment banks) caused immense stress. But mechanisms were designed to manage the risk and the resulting volatility. Would a repeat of such turbulence be welcome? Of course not. But the lessons that were learnt during that period still stand today, and the tools that were designed in response are generally still available for managing extreme market volatility if this were indeed to emerge.

But is this uncharacteristically timid tone warranted? I would argue not, and it is time for this to change.

First, we should challenge the notion that there would be a loss of trust in the euro and other reserve currencies issued by Ukraine’s allies. A core responsibility of any central bank is to steward a country’s national savings. Unless a country is planning to mount an illegal invasion of its neighbour, the security offered to its reserves by holding US and euro-area government bonds will not change, and these will remain considerably more preferrable as safe stores of value than other less liquid or less trustworthy assets. Ultimately, would a country rather own US Treasury bonds or Chinese government bonds? The conclusion is pretty clear: it seems highly unlikely that there will be a fire sale of euro- or dollar-denominated central bank reserves. Indeed, the original immobilisation of the CBR assets – the point of initial shock which came at a time of intense global concern – caused no such disturbance.

Second, there is no doubt that bankers will point out that they are already on the frontline of the economic war against Russia. Banks have indeed been asked to shoulder a considerable burden as Ukraine’s allies have piled sanctions onto Russia. And that pressure has only risen as time has passed, with banks most recently put on notice by the White House that they themselves will face sanctions if they conduct or facilitate transactions related to designated individuals or entities, or provide financial services that support the resourcing of the Russian military.

But these same bankers are in a position to allay the fears of political leaders and explain to them how – with their balance sheets, trading prowess and collaboration with the European Central Bank and others – they can mitigate those fears instead of fuelling them. Where are the voices from the City of London, Frankfurt and Paris showing the sort of chutzpah that we love to hate in bankers?

Lastly, there is a wider issue. While it may not have deterred Vladimir Putin from launching his full-scale invasion of Ukraine, others might think twice in the future before embarking on an unprovoked invasion of a neighbouring country if they realise that a considerable portion of their national wealth is at risk.

So rather than decrying the risks that such a seizure might conceivably crystallise, bankers should stand up for Ukraine and commit to doing whatever it takes to ensure that the challenges they foresee do not materialise. They have the balance sheets, the skills and the experience; all they need to add now is their infamous ‘master of the universe’ attitude that they seem to have forgotten.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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