In a joint statement on February 26, the U.S., U.K., Canada, France, Germany, Italy, and the European Commission announced that they would remove "selected Russian banks" from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system.
SWIFT, which was created in Belgium in 1973, runs its own financial messaging network called SWIFTnet, providing secure, standardized communication services and software to banks, brokers, and investment firms. It transmitted 42 million messages between financial institutions per day last year.
According to the coalition, kicking Russia out of SWIFT "will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally."
As soon as Russia's attacks on Ukraine began, countries started to implement sanctions. However, some allies were hesitant to use what French Finance Minister Bruno Lemaire described as the "financial nuclear option" because it would hinder the ability of European investors to recoup payments on the roughly $30 billion in debt still owed to them by Russian corporations and individuals.
By banning only selected Russian banks, the coalition intends to maximize the negative impact on Russia while minimizing any blowback on Europe.
"As Russian forces unleash their assault on Kyiv and other Ukrainian cities,” the coalition said, “we are resolved to continue imposing costs on Russia that will further isolate Russia from the international financial system and our economies.”
About 300 banks and financial institutions in Russia belong to the SWIFT network, which is the second-largest group of users outside of the U.S. More than half of all credit organizations in Russia also belong to SWIFT.
Once removed from the network, an institution will be prevented from making or receiving international payments using SWIFT. The Carnegie Moscow Center estimated in a 2021 analysis that the removal of all Russian banks from SWIFT would cause Russia's GDP to fall by 5%.
According to the BBC, when Iran was ousted from SWIFT in 2012, it lost 30% of its foreign trade. It remains to be seen whether an effect of similar scale will be seen with Russia, or if other countries such as China will step in to help mitigate the damage.