Russians are withdrawing billions from their bank accounts, creating liquidity problems for the banks holding them and, according to reporting on the trend, weakening the Kremlin’s ability to issue the bonds that finance the war in Ukraine. It is a quiet story with a slow mechanism, and it matters more than most single battlefield events.

How deposits pay for a war

The chain is not obvious, so it is worth laying out in order.

• Households deposit money in banks.
• Banks hold a portion in reserve and put the rest to work — including buying government bonds, which are the safest asset available to them.
• The government issues bonds to cover the gap between what it spends and what it raises in tax. In wartime that gap is large.
• Domestic banks are, under sanctions, close to the only buyers left. Foreign investors are largely absent.

Pull deposits out of step one and the effect travels all the way down. A bank facing withdrawals has to hold more cash and can commit less to long-dated government paper. If enough banks do that at once, auctions fall short or clear only at higher yields — meaning the state borrows less, or borrows at greater cost, or leans harder on the central bank.

Why people are withdrawing

Nobody can read intentions from an aggregate figure, and several explanations are consistent with the same numbers. Households may be spending savings because incomes are not keeping up with prices. They may be moving money into property, foreign currency or cash out of fear of devaluation or of restrictions on access. They may be responding to a fall in the very high deposit rates that had been holding money inside the banking system.

Those causes point in different directions. Depletion from cost-of-living pressure suggests household stress. A flight into hard assets suggests a loss of confidence in the currency or the banks. Rate-driven movement is close to mechanical and may reverse. The consequence for bank liquidity is similar in each case; the meaning is not.

What a government can do about it

Quite a lot, which is why this is a pressure rather than a wall. A central bank can lend to banks against collateral, keeping them liquid. It can raise rates to draw deposits back, at the cost of slowing everything else. Regulators can lean on state-controlled banks to keep buying government debt whether or not it is commercially sensible. In the harder cases, states have limited withdrawals outright.

Each of those has a cost, and the costs compound. Cheap central bank lending against government bonds is, in substance, financing the deficit indirectly, which feeds inflation. Restricting withdrawals stops the drain and destroys the confidence that keeps the remaining deposits in place.

What this does and does not tell us

Analysts who follow sanctioned economies have made a consistent point over several years: financial strain builds slowly and rarely produces the dramatic break that commentary anticipates. Wars have been financed through worse conditions than these. The honest framing is that the cost of continuing is rising, not that continuing has become impossible.

There is also a data problem worth stating. Reliable figures on Russian bank deposits, bond auctions and reserves have become harder to obtain and harder to verify since 2022, with some series published less frequently or in less detail than before. Assessments of this kind rest partly on inference. That does not make them wrong; it does mean they should be read as estimates with a range, not as measurements.

The indicator to watch is not the withdrawal totals but the bond auctions: whether they clear, at what yield, and who is buying.

Sources

• Washington Post — reporting on Russian bank withdrawals and bond issuance