Working Paper: CEPR ID: DP16075
Authors: Mikhail Mamonov; Anna Pestova; Steven Ongena
Abstract: We study the impact of global financial sanctions on the Russian banks and economy. Financial sanctions were consecutively imposed between 2014 and 2019, allowing potentially-targeted (but not yet sanctioned) banks to adjust their international and domestic exposures. Compared to similar other banks, targeted banks immediately reduced their foreign assets. Yet, to deal with considerable domestic depositor withdrawals, targeted banks at first actually expanded their foreign liabilities. Once sanctioned, however, banks not only further reduced their foreign assets but also started to decrease their foreign liabilities as well. Despite the introduction of government support the sanctioned banks substantially contracted their lending to the domestic corporate sector resulting in a potential loss in domestic GDP of at least four percent. However, at the same time the sanctioned banks increased household lending by almost the same magnitude, mostly offsetting the loss in GDP. Finally, unique hand-collected board membership and location data coupled with a two-stage difference-in-differences approach that flexibly addresses potential treatment diffusion allows us to show that throughout this period state-controlled banks were not all equally recognized as potential sanction targets.
Keywords: banks; financial sanctions; political influence; international borrowings; foreign assets; informational effects of sanctions; treatment diffusion
JEL Codes: E65; F34; G21; G41; H81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Sanctions (F51) | Reduction in foreign assets held by targeted Russian banks (F65) |
| Sanctions (F51) | Reduction in foreign liabilities of sanctioned banks (F34) |
| Sanctions (F51) | Contraction of lending to domestic corporate sector by sanctioned banks (G21) |
| Reduction in lending to domestic corporate sector by sanctioned banks (G21) | Loss of at least four percent of domestic GDP (F69) |
| Sanctions (F51) | Increase in household lending by sanctioned banks (G21) |
| Increase in household lending by sanctioned banks (G21) | Offset of GDP loss (F69) |
| Geographical location (R32) | Strength of informational effects of sanctions (F51) |
| Anticipated sanctions (F51) | Adjustment of behavior by non-sanctioned banks (G28) |
| State-controlled banks (G21) | Recognition as sanction targets (F51) |