Russian banks are set to be excluded from the global financial network following the Kremlin's military invasion of Ukraine, after Western nations requested that the Society for Worldwide Interbank Financial Telecommunication (SWIFT) block their access.

The denial of access to SWIFT will make it very difficult for Russian banks to communicate with peers internationally. It was previously viewed as an extremely unlikely measure, a "nuclear" sanction, partly due to its high costs to the West and the possible disruptions to international energy markets.

EU Commission President von der Leyen has also said that the EU would "paralyse" the assets of Russia’s Central Bank (CBR), freezing its transactions and making it impossible to liquidate its assets. It is not clear whether this would affect the ability of the CBR to perform currency interventions on the domestic market in support of the ruble. This could potentially lead to a reintroduction of the currency peg for the first time since the CBR floated the Russian currency in 2014.

Since the invasion on February 24 the West has already imposed two new rounds of economic sanctions. The first round mostly targeted the banking sector and expanded the previous sectoral sanctions in place; the second round targeted a wide number of Russian officials, including unprecedented, if symbolic, personal sanctions on President Vladimir Putin and Foreign Affairs Minister Sergei Lavrov. 

Now the third wave of the sanctions to be adopted by the EU will cut Russian banks from SWIFT, the High Representative of the EU for Foreign Affairs Josep Borrell Fontelles announced.

"We are engaging with European authorities to understand the details of the entities that will be subject to the new measures and we are preparing to comply upon legal instruction," SWIFT said in a statement, as cited by Reuters.

It is not yet clear which banks will be cut off from SWIFT.

"The devil will be in the details," said Edward Fishman, an expert on economic sanctions at the Eurasia Centre of the Atlantic Council think-tank.

Since the invasion on February 24, the banks targeted by sanctions were those financing the Russian military (Promsvyazbank, Sovcombank, Rossiya and others), as well as Russia's two largest state-controlled banks. VTB and Sberbank.

VTB was put on the Specially Designated Nationals and Blocked Persons (SDN) list of the US Department of the Treasury, which Moody's Investors Service previously saw as even more harmful than SWIFT exclusion. Moody's has put Russia's ratings under review for downgrade, while Standard & Poor's has already cut Russia's sovereign ratings to junk.

It took Russia four years to recover its investment grade status after the annexation of Crimea in 2014. But exclusion from SWIFT could be a point of economic no-return, with the sanction previously only being used against Iran in 2012 and North Korea in 2017.