Cash under the mattress: Russians pull billions from banks amid war fears

Nearly $3.4 billion was withdrawn during the first two weeks of August, on top of $7.3 billion in July and more than $4.5 billion in June, according to data from Russia’s central bank. At this rate, total withdrawals this year could be twice as high as during the first year of the war, according to Taras Skvortsov, a senior executive at Sberbank, Russia’s largest retail financial institution.

The mass withdrawals are causing liquidity problems at Russian banks, Skvortsov and a former senior official in the Russian financial system told The Washington Post on condition of anonymity. The difficulties are being compounded by high levels of bad debt, following the government’s demands that banks issue loans to support the military.

“Drones are flying. Things are burning down. Nervousness is growing,” the former financial official said. “And people’s everyday wisdom may be kicking in that they need to have cash under their pillow and not somewhere in banks where it may never be returned.”

“For some banks, this really is a problem. They didn’t expect this, and they invested all the cash elsewhere, and yet people are coming and taking out half a trillion rubles a month,” the official said.

Alexandra Prokopenko, a former adviser to Russia’s central bank, said the withdrawals reflect growing public fear. “It means people have no trust in the Russian banking system or in the Russian financial system,” she said. “This is all a consequence of the fear that the government will do something with the banking system, that it could nationalize deposits.” Although she believes nationalization is an unlikely scenario, she said authorities could impose restrictions on withdrawals.

That assumption is based on the capital controls imposed by the government in 2022, accompanied by a sharp interest rate hike, after $23 billion flowed out of Russian banks during the first two weeks of the war. Large businesses are now also seeking to move their money away from Russian regulators, worsening the situation. According to central bank data, $9.4 billion left Russia during the second quarter. “There is a large outflow every month,” Skvortsov said in an interview with RBK radio.

Against the backdrop of the mass withdrawals, the finance minister was forced last month to cancel a planned bond issuance, even as the government’s reliance on bonds is growing as a way to reduce the budget deficit.

After the deficit for January-July surged to 6.46 trillion rubles ($76 billion), compared with a forecast of 3.8 trillion rubles for the entire year, fears are growing that the Kremlin could seize the revenues of large businesses to finance the war. Last year, Russian billionaires’ assets worth $51.5 billion were confiscated.

“If the government needs cash, Putin will just do a grab for assets. He doesn’t care,” an associate of a Russian billionaire said. “And that’s where I think it’s heading.”