Ejecting Russia from the international financial system could have a massive impact on global capital flows, the head of the Financial Stability Board has warned.
The threat of expelling Russia from the Swift international payments system is seen as one of the West's sharpest weapons against President Vladimir Putin, whose army is keeping the world on tenterhooks with a huge buildup on the border with Ukraine.
Caution Urged
The head of the Financial Stability Board (FSB), Klaas Knot, urged heads of state to think very carefully about such a sanction, he told Britain's «Financial Times» (story behind paywall).
Bear in Mind Consequences
Sanctions have been floated in recent weeks as possible countermeasures to Russian military aggression, but would also lead to massive difficulties for the rest of the world. One should always think twice before implementing the toughest of measures, keeping in mind the consequences, Knot stressed in the interview.
U.S. President Joe Biden yesterday repeated his warnings of imposing sanctions on Russia's financial institutions should the country, as feared, invades Ukraine.
Signs of détente
At the same time, Putin had signaled he remains interested in further talks on security guarantees he demanded, and now wants to withdraw certain troop units from the border regions.
These developments led to a recovery in the stock markets, which had recently suffered from the tensions along with rising inflation.
Banks Prepared
Knot, who heads an agency of which Russia is also a member, said regulators globally are evaluating an invasion's potential impact on the global banking system, but the indirect effects were very difficult to assess.
Much depends on how extensive a military conflict would become. Banks, in principle, are prepared for such a shock, with the value of a well-capitalized system has been demonstrated in recent years. The banking industry has absorbed rather than amplified the pandemic, he said.
Thomas Jordan, head of the Swiss National Bank, and Daniela Stoffel State Secretary from the Federal Department of Finance represent Switzerland on the Financial Stability Board.
