This is a domestic financial stability story for Russia rather than one with a direct read-through for Western asset prices, but it carries meaningful signal value for anyone tracking the sustainability of Moscow’s war financing. A sustained deposit exodus of this scale tightens the funding base available to Russian banks just as they are already carrying a heavy load of state-directed lending to defence industries, raising the risk of a domestic liquidity squeeze that could eventually force more aggressive intervention, whether through deposit restrictions, capital controls, or the kind of confiscatory measures Russians are already anticipating. For traders positioning around sanctions and secondary market risk, the dismissal of a senior state economist for publicly doubting Russia’s ability to sustain the war adds to a growing list of signals, alongside widening budget deficits and collapsing bond issuance, that domestic financial strain is becoming harder for the Kremlin to manage quietly.

Russians have pulled around 24.4 billion euros from the banking system so far this year on fears the Kremlin could seize deposits to fund the war, a warning a top state economist made just before he was dismissed.

Summary:

• Russians withdrew around 24.4 billion euros from the country’s banking system in the first seven months of the year, according to Euronews, as Ukrainian drone strikes and fears of state seizure of deposits deepened the economic crisis
• Data from the Banks.ru financial marketplace shows withdrawals accelerating since early March, with around 300 billion roubles, roughly 3.05 billion euros, leaving accounts each month
• Five of Russia’s seven largest banks have recorded net deposit outflows, led by Gazprombank, which lost close to 3.04 billion euros, or 10.8% of its total deposits, over four months, and Rosselkhozbank, which shed more than 15% of its deposits
• The fear is grounded in recent state action, including the transfer of an estimated 44.3 billion euros in private assets to state control last year and the seizure of assets linked to agribusiness billionaire Vadim Moshkovich in June
• Total cash in circulation rose by around 6.53 billion euros in July alone, the largest monthly increase this year, with a further 300 billion roubles withdrawn in the first half of August
• Andrei Klepach, chief economist at state development corporation VEB, was dismissed after questioning publicly whether Russia can sustain a prolonged war
• Russia’s GDP grew just 0.3% in the first half of the year, down from 1.2% over the same period last year, according to Kremlin data that cannot be independently verified

Russians withdrew around 24.4 billion euros from the country’s banking system in the first seven months of this year, according to Euronews, as Ukrainian drone strikes on oil refineries and logistics infrastructure deepened an economic crisis and fear spread that the Kremlin could move to freeze or nationalise private deposits to help fund the war in Ukraine.

Data from the Banks.ru financial marketplace shows demand for cash rising steadily since early March, with roughly 300 billion roubles, about 3.05 billion euros, leaving Russian bank accounts every month. Five of the country’s seven largest banks have recorded net outflows of individual deposits. Gazprombank has been hit hardest, losing close to 3.04 billion euros, or 10.8% of its total deposits, over four months, while Rosselkhozbank shed more than 15% of its deposit base. Alfa-Bank, Russia’s largest private lender, lost around 1.82 billion euros, equivalent to 5.6% of deposits, while Sovcombank and VTB recorded smaller outflows. Sberbank initially held steady but has since seen significant withdrawals too, while T-Bank was the exception, posting a deposit increase over the period.

The panic is rooted in concrete developments rather than speculation alone. Russian prosecutors transferred an estimated 44.3 billion euros in private assets to state control last year, and authorities seized roughly 6.5 billion euros in assets linked to agribusiness billionaire Vadim Moshkovich in June. At the same time, Putin has been extracting what officials describe as voluntary donations from oligarchs, funnelling hundreds of billions of roubles into the federal budget by mid-August, according to the Russian business daily Vedomosti. Large companies are also moving money beyond the reach of domestic regulators, with more than 9.4 billion US dollars flowing out of Russia’s banking system in the second quarter of this year alone, central bank data show.

The scale of the current exodus surpasses the wave of withdrawals seen after the 2022 invasion, when the central bank temporarily raised interest rates to 20% and imposed capital controls to stabilise the system. Those measures were later lifted and the rush subsided, but the current trend has proven larger and more sustained. It comes as Russia’s broader economic position deteriorates, with GDP expanding just 0.3% in the first half of the year, down from 1.2% over the same period last year, according to Kremlin data that cannot be independently verified. Andrei Klepach, chief economist at the state development corporation VEB, was dismissed over the weekend after questioning publicly whether Russia could sustain a prolonged war, telling a Moscow Exchange forum in May that “we will not win the competition in this war of attrition,” a comment that has taken on added weight as the financial strain on ordinary Russians and the banking system continues to build. 

This article was written by Eamonn Sheridan at investinglive.com.