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Streetwise Professor

March 25, 2014

I Didn’t Know the Half of It: US Leverage Over Foreign Banks

Filed under: Commodities,Economics,Politics,Russia — The Professor @ 11:01 am

In my post from Sunday I mentioned how commodity trading firms require dollar funding and trade in dollars, and that anything that touches a dollar is vulnerable to US sanctions.  This detailed post from The Banker’s Umbrella shows just how much leverage the US has over foreign banks, as a result of the Patriot Act.  The most interesting thing is that you can do a deal in Euros or any other non-dollar currency, but you are vulnerable to asset seizure as long as your bank has a correspondent account at a US bank.  Money quote (pun intended):

So as you can see, from a purely technical perspective, bringing Russia and Putin to his knees is really not that difficult a task. The legislative framework is there and it is brutally effective. The question is does the USA have the political will and the stomach to face the inevitable repercussions of such actions, or is it just easier to say a few words of support in favour of the Ukraine and then let things carry on as before?

Putin surely knows this.  And apropos Obama’s mantra that Russia is acting out of weakness rather than strength, he can only have calculated that the USA (not to mention the Euros) does not “have the political will and stomach” to exploit its strengths and Russia’s weaknesses.

It is remarkable that Gazprom in particular has not been subject to sanctions, given that it will receive stolen property: gas blocks off the Crimean coast, blocks that Ukraine was going to explore.  It is a state company, that helps bankroll the state.  If it isn’t sanctions bait, what company is? And as the Banker’s Umbrella shows, like any other Russian company, it would be extremely vulnerable.

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1 Comment »

  1. As I posted elsewhere, yes, the US has plenty of leverage via banks. But it would be very costly to use:

    Slamming Iran-style sanctions on Russia would take EU&GB cooperation, neither of which is forthcoming. The US could flip out and put London banks on the “Denied Parties List” or Patiot Act sanctions but it would have to put them all on, and this would kill world trade until a new clearing center could be set up (not NYC, most likely London in Euros).

    Comment by Robert in Houston — March 27, 2014 @ 2:42 pm

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