What Is the SWIFT Banking System?

President Joe Biden unveiled new sanctions against Russia on Thursday in response to President Vladimir Putin's decision to invade Ukraine, and said that collectively, they will be "more consequential" than one of the strongest single options he could seek.

Biden stopped short of announcing the U.S. and its allies would impose a harsh financial penalty against Russia — kicking it out of the SWIFT banking system — but said such action may still be on the table as the crisis unfolds.

The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is a cooperative of financial institutions formed in 1973 and headquartered in Belgium. It is overseen by the National Bank of Belgium in partnership with other major central banks, including the U.S. Federal Reserve System, the Bank of England and the European Central Bank.

But SWIFT is not a traditional bank and does not transfer funds. Rather, it acts as a secure messaging system that links more than 11,000 financial institutions in over 200 countries and territories, alerting banks when transactions are going to occur. (For instance, American banks have a unique SWIFT code that customers use for incoming wire transfers in U.S. dollars.)

In 2021, SWIFT said it recorded an average of 42 million messages per day, an 11 percent increase from the year before. In 2020, Russia accounted for 1.5 percent of transactions.

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For the U.S. and its European allies, cutting Russia out of the SWIFT financial system would be one of the toughest financial steps they could take, damaging Russia's economy immediately and in the long term. The move could cut Russia off from most international financial transactions, including profits from oil and gas production, which accounts for more than 40 percent of the country's revenue.

Allies on both sides of the Atlantic also dangled the idea of the SWIFT option in 2014, when Russia annexed Crimea and backed separatist forces in eastern Ukraine. Russia declared then that kicking it out of SWIFT would be equivalent to a declaration of war. But the allies shelved the idea.

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