Russians rush to pull cash from banks amid fears of deposit seizures

Cash withdrawals are surging in Russia as anxiety grows that the government may seize deposits or corporate assets to fund its war effort. Analysts say the wartime economy, driven by defense industry spending, is placing mounting strain on the financial system and public finances as the war in Ukraine drags on.

Citing data from Russia's central bank, The Washington Post reported Tuesday that Russians withdrew about 286.4 billion rubles — roughly $3.4 billion — from banks in the first two weeks of August alone. Withdrawals reached $7.3 billion in July and exceeded $4.5 billion in June.

The cumulative total for this year has already surpassed the $24.7 billion, or about 2 trillion rubles, withdrawn throughout all of 2022, when Russia launched its full-scale invasion of Ukraine. Taras Skvortsov, a senior executive at Sberbank, Russia's largest retail bank, projected that total cash withdrawals for this year would reach nearly double the figure recorded in the first year of the invasion.

In the early stages of the war, the Russian government stemmed capital outflows through capital controls and sharp interest rate hikes. It subsequently kept deposit rates elevated to keep money in the banking system, but growing fears of possible deposit confiscation have since prompted both individuals and businesses to move funds out of banks.

A former Russian Finance Ministry official, who spoke on condition of anonymity, told The Washington Post that as Ukrainian drones fly overhead and buildings burn, Russians have begun to feel it is safer to keep cash under their mattresses or pillows than to leave money in a bank and risk never getting it back.

Alexandra Prokopenko, a former adviser to Russia's central bank, said the trend means people no longer trust Russia's banks or its financial system. "It is the result of fear that the government might nationalize deposits," she said.

Rising demand for cash has also been driven by Ukrainian drone strikes destabilizing Russia's energy facilities and power grid. Disruptions to electricity supply have hampered card payments, pushing more transactions to cash — a trend compounded by fears of deposit seizures, analysts say.

The strain on bank liquidity is also intensifying. Since the war began, the Russian government has pushed banks to expand lending to boost defense production, leaving them with a heavier burden of nonperforming loans. The surge in withdrawals has now made it harder for banks to manage their funds.

The former official said banks had not anticipated the situation and had invested all their cash elsewhere, while people are now withdrawing 500 billion rubles every month.

The cash exodus is also complicating the government's efforts to issue government bonds. The Finance Ministry had sought to sell bonds to cover the war-swollen fiscal deficit, but banks squeezed for liquidity have had less capacity to buy them, forcing the ministry to cancel a planned bond sale last month.

Anxiety in the bond market has pushed yields on Russia's 10-year government bonds to 17 percent, compelling the Finance Ministry to postpone additional issuances.

The fiscal picture is deteriorating further. Russia's budget deficit from January through July reached 6.46 trillion rubles, or about $76.1 billion — far exceeding the government's full-year forecast of 3.8 trillion rubles.

Russia's central bank has also cut its GDP growth outlook for this year to a range of 0 to 1.0 percent, down from a previous forecast of 0.5 to 1.5 percent, reflecting a slowing economy. Analysts say a vicious cycle is taking hold, with high interest rates suppressing private investment and consumption while war costs deepen the fiscal burden.

Fears of asset seizures are also driving capital out of the country. Central bank data show that more than $9.4 billion left Russia for overseas destinations in the second quarter of this year alone. Large corporations and wealthy individuals are also moving money beyond the government's reach.

Anxiety is particularly acute over the possibility that the Kremlin could seize the profits or assets of major companies to fund the war. Since the Ukraine war began, companies owned by billionaires have been nationalized in a string of cases. According to Russian prosecutors, assets worth $51.5 billion were seized by the state last year alone.

In June, assets worth $7.6 billion linked to Vadim Moshkovich, founder of one of Russia's largest agricultural companies, Rusagro, were seized. Moshkovich was subsequently detained and indicted on charges of large-scale fraud.

A business executive who requested anonymity told The Washington Post: "If the government needs cash, Vladimir Putin will sweep up corporate assets. If you can move money abroad, of course you will."

Rising global oil prices are providing temporary relief for Russia's finances. As tensions in the Middle East pushed up crude prices, revenue at Russian state-owned oil and gas companies last month rose 60 percent from a year earlier. However, cumulative revenue from January through July still remains 11 percent below the same period last year.

The cash withdrawal rush signals more than a simple shift in savings behavior — it points to eroding confidence in Russia's wartime economy. With the fiscal deficit widening and banking sector liquidity worsening as the war drags on, analysts warn that if anxiety among individuals and businesses continues to spread, the government's financing burden could grow even heavier.