Russians withdraw record cash from banks amid fears of war funding seizure

Russians are withdrawing unprecedented sums of cash from the country's banks, driven by fears that the Kremlin might seize private assets to fund its ongoing war in Ukraine. This surge in withdrawals, totaling over 286 billion rubles (approximately $30 billion) in the first two weeks of August alone, nearly doubles the amount taken out in the first year of the full-scale invasion.

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We who follow Russia have been talking about this for a long time.

The trend signals a significant erosion of trust in the Russian banking system. Alexandra Prokopenko, a former advisor to the Russian central bank, noted that companies are also attempting to move money beyond the reach of Russian regulators. A Russian financial source described the situation as a "classic bank run scenario," where nervousness about drones, fires, and the potential loss of funds leads people to keep cash "under the pillow."

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Drones are flying. Things are burning down. Nervousness is growing. And people's common sense might start kicking in that they need to have money under the pillow and not somewhere in banks where they might never come back.

For some banks, these large-scale withdrawals are creating liquidity problems. The Russian banking system is already strained by increasing numbers of unpaid loans, exacerbated by state-directed lending to military production. Torbjörn Becker, head of the Institute of East European Economics at the Stockholm School of Economics, warned that a loss of confidence can lead to a banking crisis, which is notoriously difficult to manage at a macroeconomic level.

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For some banks, this is really a problem.

Becker also highlighted the long-term risks, stating that a sustained lack of confidence can lead to a less functional economy and reduced growth. Historically, the Russian central bank imposed limits on cash withdrawals and foreign currency purchases early in the conflict, measures that may be revisited if the situation escalates.

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This is a classic bank run scenario. The financial system is built on trust. As soon as people start questioning whether they can actually get their money out, many risk running to the bank at the same time.