Even the Big Banks Think Stealing Russian Assets Is a Bad Idea

We’ve been warning Western policymakers and everyday citizens about the dangers of seizing Russian assets held in the form of U.S. Treasury securities.

Russia owns approximately $300 billion in U.S. Treasury debt of various maturities. All Treasury debt is held in digital book entry form (the last paper Treasury note was issued in 1979). The ledger is controlled by the U.S. Treasury operating through the Federal Reserve, but there are custodians and sub-custodians who hold the securities in the customer’s name.

Most of the Russian holdings of U.S. Treasuries are held at Euroclear, a major custodian and clearing firm based in Belgium. Only about $20 billion are held in U.S. banks, and some are held among various major European banks. The U.S. froze those assets immediately after the start of the Russian Special Military Operation in Ukraine in February 2022. Freezing the assets is not uncommon. It means Russia still owns them, but it cannot sell them, pledge them, or collect interest.

Now the U.S. wants to go a step further and actually seize these assets (a form of theft under international law) and use the proceeds to finance the war against Russia. This is reckless and illegal, but the U.S. is determined to move forward. Russia will retaliate by seizing an equivalent amount of German, French, and Italian assets in Russia that have so far been left undisturbed.

Other countries with large holdings in U.S. Treasuries, such as Saudi Arabia, China, India, Brazil, and Singapore, will begin to diversify away from Treasuries, which will raise interest rates in dollar markets. U.S. interest rates will go up as markets impose a risk premium on the debt. The move will not stop Russia’s actions in Ukraine and will not impair their reserve position unduly – Russia has over $200 billion in gold bullion.

Now, even Western banks are speaking up against the plan to seize Russian assets. The lesson for the United States is simple. When you weaponize your debt securities, don’t be surprised if the weapon is used against you.