LONDON/NEW YORK, Feb 22 (Reuters) – The United States, the European Union and Britain announced new sanctions on Russia on Tuesday after Moscow’s recognition of two separatist regions in Ukraine as independent entities.

Chief among their targets: Russian banks and their ability to operate internationally.

Yet the impact of the new sanctions is likely to be minimal. Western governments – for now – are preferring to keep the much larger sanctions packages that they have planned in reserve should the crisis escalate.

It means Russian bankers or their Western counterparts with exposures to the country won’t be losing much sleep.

Indeed, U.S. banks are not expecting global sanctions to have a major impact on American bank businesses or spark contagion risk, given lenders have little exposure to the Russian economy, said three executives familiar with industry thinking. [nL8N2UX2PZ]

Here’s how the banks are being targeted and which measures might hit harder:

WHAT HAS BEEN ANNOUNCED SO FAR?

European foreign ministers agreed to sanction 27 individuals and entities, including banks financing Russian decision-makers and operations in the breakaway territories.

The package of sanctions also includes all members of the lower house of the Russian parliament who voted in favour of the recognition of the breakaway regions. read more

Britain imposed sanctions on Gennady Timchenko and two other billionaires with close links to Russian President Vladimir Putin, and on five banks – Rossiya, IS Bank, GenBank, Promsvyazbank and the Black Sea Bank. read more

The lenders are relatively small and only military bank Promsvyazbank is on the Russian central bank’s list of systemically important credit institutions.

Bank Rossiya is already under U.S. sanctions from 2014 for its close ties to Kremlin officials.

Washington imposed sanctions on Promsvyazbank and VEB bank.

It also ramped up prohibitions on Russian sovereign debt, which U.S. President Joe Biden said meant the Russian government would be cut off from Western financing. The U.S. Treasury said it was extending current prohibitions to cover participation in the secondary market for bonds issued after March 1 by Russia’s Central Bank and other entities. read more

Russian dollar bonds extended their losses after the announcement on U.S. sanctions, with longer-dated issues slipping to record lows trading in the mid-90s, data showed. ,
The premium demanded by investors to hold Russian debt over safe-have U.S. Treasuries blew out to 329 basis points, the widest since the COVID market rout in spring 2020. (.JPMEGDRUSR)

WHAT WILL THE IMPACT BE?

For now – minimal.

Russia’s large banks are deeply integrated into the global financial system, meaning sanctions on the biggest institutions could be felt far beyond its borders.

But the new sanctions focus on smaller lenders.

The measures targeting banks are not yet as extensive as those imposed after Russia’s annexation of Crimea in 2014, although many of those sanctions remain in place.

Then the West blacklisted specific individuals, sought to limit Russia’s state-owned financial institutions’ access to Western capital markets, targeted the bigger state lenders, and imposed widespread limits on the trade of technology.

Britain’s new measures refrained from imposing limits on the biggest state banks, cutting off capital for Russian companies, or ejecting other prominent so-called Russian oligarchs from Britain.

Shares in Russia’s biggest banks, Sberbank (SBER.MM) and VTB soared after the state-controlled groups escaped the sanctions.

Analysts say Russian institutions are better able to cope with limited sanctions than eight years earlier, and Russian state banks have cut their exposure to Western markets.

Russia has since 2014 diversified away from U.S. Treasuries and dollars – the euro and gold account for a bigger share of Russia’s reserves than do dollars, according to a January report from the Institute of International Finance.

Russia has some strong macroeconomic defences too, including abundant hard currency reserves of $635 billion, oil prices near $100 a barrel and a low debt-to-GDP ratio of 18% in 2021. read more

“The ones today were not that significant,” said Samuel Charap, a senior political scientist at the nonprofit, nonpartisan RAND Corporation, about the U.S. sanctions.

“The question is where we go from here,” he said. “I am increasingly pessimistic, and I think there is a high probability of significant further Russian military action and I think in that case, we are likely to see some of the really qualitatively more devastating measures than in the past.”

WHAT MIGHT COME NEXT?

The EU has said it is ready to impose “massive consequences” on Russia’s economy but has also cautioned that, given the EU’s close energy and trade ties to Russia, it wants to ratchet up sanctions in stages. read more

Officials consider Tuesday’s measures as a first round.

Beyond lenders that do business directly with the breakaway regions, it’s not clear yet when or whether the EU will hit the biggest banks.

Washington has prepared a raft of measures including barring U.S. financial institutions from processing transactions for major Russian banks by cutting “correspondent” banking relationships, sources told Reuters last week.

Disabling international payments would hit hard.

Those measures, however, may be kept in reserve.

Russia’s Sberbank and VTB would face American sanctions if Moscow proceeds with its invasion of Ukraine, a senior U.S. administration official told reporters.

If such banks did get targeted, U.S. banks could face retaliation, said Charap, who pointed to cyber attacks as a potential weapon that could be used.

WHAT WOULD HIT HARDEST?

What the region’s banks and Western creditors fear most is the possibility that Russia is banned from a widely used global payment system, SWIFT, which is used by more than 11,000 financial institutions in over 200 countries. read more

Such a move would hit Russian banks hard but the consequences are complex. Banning SWIFT would make it tough for European creditors to get their money back and Russia has been building up an alternative payment system.

Data from the Bank of International Settlements (BIS) shows that European lenders hold the lion’s share of the nearly $30 billion in foreign banks’ exposure to Russia.

WHICH FOREIGN BANKS ARE MOST EXPOSED?

Europe’s banks – particularly those in Austria, Italy and France – are the world’s most exposed to Russia, and have been on high alert should governments impose new sanctions.

Italian and French banks each had outstanding claims of some $25 billion on Russia in the third quarter of 2021, according to BIS figures. Austrian banks had $17.5 billion. That compares with $14.7 billion for the United States.

Among the most exposed lenders is Austria’s RBI (RBIV.VI), which has big operations in Russia and Ukraine. It has said “crisis plans” would come into effect if things deteriorate. Its shares closed down 7.5% on Tuesday. read more

Many foreign banks have, however, significantly reduced their exposure to Russia since 2014, making some bankers less concerned about the threat of sanctions.

Our Standards: The Thomson Reuters Trust Principles.

BEIJING/TAIPEI, Feb 23 (Reuters) – Taiwan is “not Ukraine” and has always been an inalienable part of China, China’s foreign ministry said on Wednesday, as Taiwan President Tsai Ing-wen called for the island to beef up vigilance on military activities in response to the crisis.

The comments come after British Prime Minister Boris Johnson flagged the risk for Taiwan in a warning last week about the damaging worldwide consequences if Western nations failed to fulfil their promises to support Ukraine’s independence. read more

China, which claims Taiwan as its own territory, has stepped up military activity near the self-governing island over the past two years, though Taiwan has reported no recent unusual manoeuvres by Chinese forces as tension over Ukraine has spiked.

Speaking in Beijing, Foreign Ministry spokesperson Hua Chunying dismissed any link between the issues of Ukraine and Taiwan.

“Taiwan is not Ukraine,” she said. “Taiwan has always been an inalienable part of China. This is an indisputable legal and historical fact.”

The issue of Taiwan is one left over from the civil war, but China’s integrity should never have been compromised and never has been compromised, Hua added.

The defeated Republic of China government fled to Taiwan in 1949 after losing the civil war to the Communists, who set up the People’s Republic of China.

Taiwan’s government strongly opposes China’s territorial claims. Tsai says Taiwan is an independent state called the Republic of China, which remains Taiwan’s official name.

All security and military units “must raise their surveillance and early warning of military developments around the Taiwan Strait,” Tsai told a meeting of the working group on the Ukraine crisis set up by her National Security Council.

Taiwan and Ukraine are fundamentally different in terms of geostrategy, geography and international supply chains, she added, in details of the meeting provided by her office.

“But in the face of foreign forces intending to manipulate the situation in Ukraine and affect the morale of Taiwanese society, all government units must strengthen the prevention of cognitive warfare launched by foreign forces and local collaborators,” it cited Tsai as saying.

The statement did not mention China by name, but the country is the most significant military threat that Taiwan faces.

Tsai has expressed “empathy” for Ukraine’s situation because of the military threat the island faces from China. read more

Our Standards: The Thomson Reuters Trust Principles.

WASHINGTON, Feb 22 (Reuters) – If Russia further invades Ukraine, the Biden administration could deprive it of a vast swath of low- and high-tech U.S. and foreign-made goods, from commercial electronics and computers to semiconductors and aircraft parts, people familiar with the matter told Reuters.

President Joe Biden would achieve that by expanding the list of goods that require U.S. licenses before suppliers can ship them to Russia, and his administration would then deny those licenses, the people said.

The measures, whose details have not previously been reported, are part of a suite of export control penalties that the United States has prepared to damage Russia’s economy, targeting everything from lasers to telecoms equipment and maritime items.

They were not announced on Tuesday as part of a round of sanctions unveiled by Biden to punish Russian President Vladimir Putin for recognizing two breakaway regions of Ukraine as independent and deploying troops into the regions to “keep the peace.” read more

But a senior administration official said, “if Putin escalates further, we will escalate further, using both financial sanctions and export controls, which we’ve yet to unveil.”

The official added: “Export controls are really potent because we’re talking about critical technology inputs that Russia needs to diversify its economy.”

The official added that the United States is “fully prepared with a very large number of countries across the world to implement those export control measures if the invasion proceeds.”

The White House, and the Commerce Department, which oversees U.S. export controls, did not respond to requests for comment on details of the potential restrictions.

The package, which was still being fine-tuned over the weekend and could change, could come even as some White House officials have pledged to spare the Russian consumer from the brunt of the penalties.

The goal of the export control measures “is really to degrade Russia’s ability to have industrial production in a couple of key sectors,” Peter Harrell, who sits on the White House’s National Security Council, said in a speech last month. He said the administration was focused on industrial production and high-tech sectors “rather than how do we sort of target the Russian people writ-large.”

The administration has been vowing to hit Moscow with a potent cocktail of banking sanctions and export controls for weeks, in response to a massing of hundreds of thousands of Russian troops along Ukraine’s borders.

Reuters reported on Saturday that the Biden administration had also prepared a package of sanctions against Russia that includes barring U.S. financial institutions from processing transactions for major Russian banks. read more

By far the most sweeping measure contained in the export controls package would take a page from restrictions placed on Chinese telecom giant Huawei Technologies Co Ltd (HWT.UL) under former President Donald Trump. It would dramatically expand the scope of the so-called Foreign Direct Product Rule (FDPR), requiring firms that use U.S. tools to make technology overseas to obtain a U.S. license before shipping them to Russia.

“It’s extraordinarily novel and has the potential for being far more significant than controls just on exports of these items from the United States,” said Washington lawyer Kevin Wolf, a former Commerce Department official.

U.S. suppliers would also have to obtain licenses for certain Russia-bound items that do not currently require them, such as civil aircraft parts. Whether Europe would follow suit with similar measures remains to be seen.

Japan said on Tuesday it stood ready to join the United States and other G7 industrialised nations in slapping sanctions on Russia. read more

On Tuesday, Biden said the United States would impose sanctions against two large Russian financial institutions and Russian sovereign debt and against some Russian elites and their family members. read more

On Monday, as an initial response to Putin’s moves into eastern Ukraine, Biden vowed to end investment in and trade with the regions while British Prime Minister Boris Johnson announced initial sanctions targeting Russian banks and billionaires.

Under changes proposed in the U.S. export control package, the license applications, in turn, would face a strict “policy of denial” standard of review, meaning only in rare cases would the administration approve them.

In addition, Russian companies listed as so-called military end users for their alleged ties to the Russian military, including a handful of aircraft producers, would be added to a trade blacklist known as the entity list. That would broaden the scope of items the companies would need licenses to obtain.

Finally, Washington would expand the scope of products that would need approval from the United States when sent to Russian military end users through an even broader application of the FDPR rule, subjecting to U.S. licenses requirements all items made abroad with U.S. tools and destined for companies that support the military.

U.S. exports to Russia were under $5 billion in 2020, according to the Commerce Department, and already face many curbs. But the use of the FDPR rule dramatically expands the impact of the restrictions included in the package.

Our Standards: The Thomson Reuters Trust Principles.

MOSCOW/DONETSK/WASHINGTON, Feb 22 (Reuters) – U.S. President Joe Biden on Tuesday revealed new sanctions on Russian elites and two banks as the West tries to stop an all-out invasion of Ukraine by punishing Moscow for ordering troops to two separatist regions it has recognised.

The European Union, Germany and Britain also announced ways they will hit Russia financially as they fear a further incursion is to come, a move Moscow has consistently denied for months.

One of the worst security crises in Europe in decades is unfolding as Russian President Vladimir Putin ordered Russian troops into eastern Ukraine to “keep the peace.” Washington has dismissed as “nonsense” that justification to deploy troops to the regions of Donetsk and Luhansk after Moscow recognised them as independent.

Both adjoin Russia and have been controlled by Russian-backed fighters since 2014.

Weeks of intense diplomacy have so far failed as Moscow calls for security guarantees, including a promise that its neighbour Ukraine will never join NATO, while NATO members offer Putin confidence-building and arms control steps.

“To put it simply Russia just announced that it is carving out a big chunk of Ukraine,” Biden said on Tuesday at the White House.

“He’s setting up a rationale to take more territory by force,” Biden said. “This is the beginning of a Russian invasion of Ukraine.”

In response to Russia not withdrawing its forces from Belarus to the north of Ukraine, Biden said he had authorized additional movements of U.S. forces and equipment already in Europe to strengthen Estonia, Latvia and Lithuania.

“Let me be clear, these are totally defensive moves on our part. We have no intention of fighting Russia,” he said. “We want to send an unmistakable message though, that the United States, together with our allies, will defend every inch of NATO territory.”

MILITARY BANK

Sanctions are being applied to VEB bank and Russia’s military bank, Promsvyazbank, which does defence deals, Biden said. Starting on Wednesday U.S. sanctions will begin against Russian elites and their family members.

Tass news agency cited Promsvyazbank as saying the sanctions would not have a significant effect since it had taken precautionary measures ahead of time. It did not give details.

The hit to Russia’s sovereign debt meant the Russian government would be cut off from Western financing, according to Biden.

1/3

A tank drives along a street after Russian President Vladimir Putin ordered the deployment of Russian troops to two breakaway regions in eastern Ukraine following the recognition of their independence, in the separatist-controlled city of Donetsk, Ukraine February 22, 2022. REUTERS/Alexander Ermochenko

Putin did not watch Biden’s speech and Russia will first look at what the United States has outlined before responding, according to Kremlin spokesperson Dmitry Peskov, cited by Russian news agencies.

Earlier on Tuesday, Germany put the brakes on a new gas pipeline from Russia and Britain also hit Russian banks with sanctions. The Russian foreign ministry criticised the new measures as “illegitimate”.

The European Union also agreed new sanctions that will blacklist more politicians, lawmakers and officials, ban EU investors from trading in Russian state bonds, and target imports and exports with separatist entities.

Russian Foreign Minister Sergei Lavrov earlier brushed off the threat of sanctions.

“Our European, American, British colleagues will not stop and will not calm down until they have exhausted all their possibilities for the so-called punishment of Russia,” he said.

MARKETS WORRY, SEPARATISTS CELEBRATE

The prospect of a disruption to energy supplies and fears of war – stoked by reports of shelling in some areas and movements of unmarked tanks overnight in the city of Donetsk – rattled markets and sent oil prices to their highest level since 2014.

Germany is Russia’s biggest customer for natural gas, and the decision by Chancellor Olaf Scholz to freeze the Nord Stream 2 pipeline – built but awaiting approval – was widely seen as one of the strongest measures Europe could take.

Germany’s economy ministry will take steps to ensure that certification could not take place for now, said Scholz.

Ukrainian Foreign Minister Dmytro Kuleba hailed the move.

“This is a morally, politically and practically correct step in the current circumstances,” he said. “True leadership means tough decisions in difficult times. Germany’s move proves just that.”

The Kremlin said it hoped the delay was temporary. Putin said Russia “aims to continue uninterrupted supplies” of energy to the world.

Following Russia’s recognition of independence, in Donetsk, some residents were celebrating, with cars flying Russian flags and sounding their horns.

But several blasts were heard in the city on Tuesday, and some people questioned whether Putin’s moves would bring peace.

The Russian-backed separatists in Donetsk and Luhansk broke away from Ukrainian government control in 2014 and proclaimed themselves independent “people’s republics” after a pro-Moscow Ukrainian president was ousted in Kyiv.

“I know that the blood I spilled with my comrades and our labours and efforts and the losses of civilians were not in vain all this time,” Dmitry, a former member of a pro-Russian militia, said in Donetsk on Tuesday.

Our Standards: The Thomson Reuters Trust Principles.