British banks oppose plan to use frozen Russian assets: what's behind opposition to £8 billion for Ukraine

London is slowing down on the financial front: why is the City afraid of a loan for Ukraine at the expense of Russian assets?

As G7 and EU governments seek to turn frozen Russian money into a real financial shield for Ukraine, the City of London is ostentatiously slamming on the brakes. British banks are refusing to back the government's idea of ​​using around £8bn of Russian assets for an interest-free loan to Kyiv, warning of "significant legal risks" and a possible wave of lawsuits from Moscow.^{1 2}Behind the external technical argument lies a much deeper story – the fear of destroying trust in London as one of the world’s main financial havens and the banks’ reluctance to become the front line in the sanctions war against Russia.^{1 7}.

The essence of the British plan: how "reparation" loans were supposed to work

The British government is considering a scheme under which around £8 billion of frozen Russian assets held in UK banks could become the basis for an interest-free loan to Ukraine^{1 2}Formally, this is not about the complete confiscation of capital, but about using these assets as collateral for a loan that is supposed to finance budget needs, defense, and the restoration of the Ukrainian economy.^{3 11}The government in London tried to synchronize this initiative with European and G7-wide approaches, where it has already been agreed to use excess profits from frozen assets to service loans to Ukraine, but the British scheme went further, approaching the actual use of the capital itself.^{8 11}.

The idea seems simple: the funds of Russian state and Kremlin-linked capital, which have been working for years for profit through the European market infrastructure, should at least partially compensate for the damage caused by the aggression against Ukraine.^{10 18}. However, unlike outright confiscation, the legal intent of the plan was to demonstrate respect for international law and sovereign immunity, while leaving formal ownership with Russia – at least on paper.^{11 13}.

Why banks say "no": fear of courts and precedent

The position of the leading British banks boils down to one argument: they are being forced to take on a risk that politicians are not willing to share, either financially or legally.^{1 2}The configuration of the plan assumes that in the event of a Ukrainian default or a protracted political conflict over the status of the assets, it is the banks that could find themselves defendants in international courts when Russia tries to challenge the use of its funds.^{1 12}Bankers emphasize: the government has still not provided clear guarantees of compensation in the event of Moscow's countermeasures - from lawsuits to mirror confiscations of Western assets in Russian jurisdiction^{1 18}.

At the heart of the claims is the risk of setting a precedent that would hit the very brand of the City of London. For global clients, the key advantage of the British financial system is predictability and capital protection, even in politically toxic cases.^{7 14}If today Russia's state assets can actually be used to lend to another state, tomorrow any sovereign investor may ask the question: are our reserves in London safe if geopolitics changes the government's mood?^{11 17}?

The secrecy and scale of Russian money in Britain

The exact list of banks holding Russian assets in Britain is effectively classified, and the financial institutions themselves refuse to confirm their involvement.^{1 2}It is known that the total volume of Russian assets frozen in the jurisdiction of the EU and the UK is measured in hundreds of billions of euros, and a significant part of Russian state reserves is “stuck” in the clearing giant Euroclear, which is already generating billions of excess profits from their placement.^{3 11}Against this backdrop, Britain's £8bn looks more like part of a wider package than an isolated story, but it is London that is now the focus of both political pressure and financial fears.^{1 7}.

British officials emphasize that the plan does not apply to about £28 billion in assets frozen under individual sanctions against Russian oligarchs and related entities - it primarily concerns state or quasi-state funds.²However, this clarification is not enough to convince the banks: lawyers warn that Russia will try to use any difference between the formal status of the asset and its actual use as a basis for long and expensive legal proceedings.^{10 12}.

EU reaches 'breakthrough' deal: contrast with London

While British banks are holding back the initiative, the European Union is showing its readiness for a much larger solution. A scheme is being discussed in Brussels that would allow around €210 billion in frozen Russian assets to remain in the eurozone and, on this basis, create a credit facility of up to €90 billion to support Ukraine, covering key budgetary, economic and defence needs for the coming years.^{3 11}It is proposed that this loan will be repaid from future reparations from Russia, and while the war is ongoing, from the excess profits generated by the frozen assets.^{3 8}.

A consensus has already been formed in most EU countries that frozen (immobilized) Russian funds should remain blocked until the end of the aggression and full compensation for the losses caused to Ukraine.^{4 11}The resistance comes primarily from Belgium, which fears that in the event of an unforeseen unfreezing of assets, it may find itself responsible for repaying part of the loan due to the role of the Belgian Euroclear as the main storage site for Russian state money.^{3 10}.

The G7 and the “sacred cow” of private property

In 2024–2025, the G7 countries agreed on a compromise model: not to touch the capital of the frozen assets themselves, but to direct the extraordinary income from their placement to servicing and repaying large loans to Ukraine, totaling tens of billions of dollars.^{8 11}This approach allowed us to circumvent the most contentious issues of sovereign immunity and avoid a direct violation of the principle of the inviolability of state property, which for decades was the foundation of the global financial architecture.^{11 13}. Relatively speaking, the “sacred cow” of private and sovereign property is not taken away, but “milked”: the owner formally retains the right to the asset, but its income is directed to compensation for damage from the war.⁷.

Even within this softer model, Western governments are weighing not only legal but also geoeconomic risks. Mass confiscations of Russian assets could push other states – from authoritarian regimes to formally friendly countries – to seek new “safe havens” outside the jurisdictions of the US, EU and UK.^{7 14}For London, which still claims the role of one of the world's key financial centers, this is a threat measured not only in billions, but also in the long-term weakening of its influence on global capital flows.^{7 17}.

Legal node: sovereign immunity and countermeasures

The key legal dilemma concerns sovereign immunity – the principle that the property of a foreign state is protected from lawsuits and enforcement in the jurisdiction of another country, unless the state itself has waived this immunity.^{11 13}The collective West is trying to justify the use of Russian assets as a legitimate countermeasure in response to a gross violation of international law – armed aggression against Ukraine and mass war crimes.^{10 18}Some international lawyers believe that this logic provides a legal basis for confiscation or use of assets, but this position is far from complete consensus.¹¹.

The problem for British banks is that even the strongest political and moral arguments do not guarantee success in every court. Russia has already shown a willingness to use international and national courts to delay sanctions decisions, and the complexity of the state-owned assets case makes the prospect of years of litigation almost inevitable.^{12 18}If banks become formal operators of the Russian-funded lending scheme, they will be at the forefront of these legal battles, not the government that initiated the political decision.^{1 12}.

The risk of fragmentation of the global financial system

Economic analysts warn that radical steps to confiscate large state reserves could accelerate the transition to a more fragmented global financial system, where a significant portion of reserves goes to jurisdictions less sensitive to Western political pressure.^{7 14}Already today, some countries are strategically diversifying their reserves, increasing the share of gold, yuan or assets in formally neutral regions, fearing that the sanctions mechanism could be used against them in future conflicts.^{14 17}For London, which has attracted sovereign wealth funds, oil revenues and reserves from authoritarian states for decades, betting on its reputation as a “safe haven” has been one of its key assets.⁷.

In this context, the resistance of British banks looks not only as a corporate defense of the balance sheet, but also as an attempt to maintain the City model as a platform where politics does not encroach too deeply on investors' rights. However, Russia's war against Ukraine is destroying old agreements: societies in the West are increasingly demanding that the "frozen billions" work for the victims of aggression, rather than silently bringing income to financial institutions.^{7 10}The longer the imbalance between the rhetoric of support for Ukraine and the actual use of Russian assets continues, the more acute the political questions become for governments and banks simultaneously.^{18 20}.

The Ukrainian dimension: between the need for money and patience with allies

For Ukraine, the issue of using Russian assets is not an academic discussion, but a struggle for economic survival and the ability to wage a long war. According to international institutions, Ukraine's external financing needs are measured in tens of billions of dollars each year, and even the largest aid packages from the EU, the US and international financial organizations only partially close the budget gap.^{3 18}Against this backdrop, frozen Russian assets – from €210 billion in the EU to hundreds of billions across the G7 – appear to be a logical source of long-term support, relieving political fatigue from regular ratifications of aid packages.^{8 11}.

Ukrainian diplomacy insists: this is not about a "gift" or "generosity" from partners, but about an element of future reparations that Russia will still have to pay for destroyed infrastructure, human losses, and economic damage.¹⁰In this sense, the banks' opposition looks in Kyiv like the West's reluctance to cross the final line of confrontation with the Kremlin, while on the battlefield this confrontation has long been a reality.^{10 20}The longer allies delay using Russian funds, the more Ukraine depends on political cycles in Washington, Brussels, and London – with all the risks of populism, elections, and shifting priorities.^{8 16}.

The French signal and the split of the private sector

The British banks' refusal is not the first time that the private financial sector has openly distanced itself from government plans to use Russian assets to aid Ukraine. Previously, French commercial banks also expressed reluctance to participate in the "reparation loan" scheme, citing contractual obligations to clients and the risk of future lawsuits.^{2 12}At the same time, Paris declared its support for the idea of ​​a loan for Ukraine at the political level, but categorically opposed the use of assets placed in private banks, instead insisting on the role of intergovernmental and supranational institutions as the main leaders of such operations.^{12 13}.

This gap between political will and private sector capabilities highlights a structural problem: in the modern financial system, states have delegated a critical part of reserve and asset operations to commercial players who think in terms of risk, profit, and regulatory requirements, not geopolitics.^{11 13}For Ukraine, this means that any “grand deal” regarding Russian assets will inevitably require structures that minimize the involvement of private banks as formal parties to the transaction – or a radical strengthening of state guarantees, which London is not yet offering.^{1 12}.

The role of the ECB and the deterrent factor of regulators

The European Central Bank has also already shown caution against overly aggressive schemes for using Russian assets. When the EU discussed the option of providing Ukraine with a so-called “reparation loan” with the possibility of emergency refinancing through the ECB, the regulator refused to provide such support, citing risks to financial stability and monetary policy independence.^{8 15}This decision sent a serious signal to commercial banks: even if the central bank is not ready to become the insurer of last resort, it is difficult for private players to explain to shareholders why they should take on political risk.^{15 17}.

Against this background, Britain's caution becomes more understandable: London has traditionally sought to maintain the image of a jurisdiction where regulators act predictably, and changes to the rules of the game occur slowly and after lengthy discussions with the market.^{7 14}But the war against Ukraine is accelerating time, and what seemed like a legal taboo yesterday is today becoming the subject of very specific bills and financial structures.^{8 18}When geopolitics collides with market logic, it is regulators who become the arbiters, and their willingness to take on some of the risks determines whether political statements will turn into real money for Ukraine.^{11 15}.

What could change London's position?

Several factors could change the current configuration. First, the emergence of a clear international legal framework – in the form of a multilateral G7 agreement or a special mechanism under the auspices of an international organization – that explicitly recognizes the right to use Russian assets as a countermeasure and distributes risks between states, rather than shifting them to individual banks.^{8 11}Secondly, the British government can offer financial institutions comprehensive guarantees - from compensation for possible losses to the creation of a special insurance fund that will cover legal costs and potential counter-sanctions.^{1 12}.

Third, the Kremlin itself may reduce the appetite for caution through its own behavior. Already today, Russia has effectively confiscated a number of Western assets on its territory, demonstrating that in its eyes the principle of reciprocity has long been violated.^{18 20}If this trend increases, the argument about the need to “be careful with precedent” may lose weight, and politicians will have more reason to put pressure on banks: protecting the assets of a state that itself does not respect property rights is becoming increasingly difficult – both legally and morally.^{7 10}.

Why it is important for Ukraine not to miss the moment

The window of opportunity for a major decision on Russian assets will not be open forever. The political will of the current G7 and EU governments is closely tied to the active phase of the war, high media attention, and public support for Ukraine.^{8 16}With the decline in the intensity of hostilities, a change of administration in the US, Europe or Britain, and the electorate's fatigue with the topic of war, inertia will return the discussion to more comfortable but much less effective schemes of targeted aid and loans on general terms.^{18 20}.

That is why London's reaction to the plan to use £8 billion of Russian assets is important not only as a technical episode, but as an indicator of whether the West is ready to turn declarations about "making Russia pay for the war" into concrete mechanisms. If even one of the most powerful financial centers in the world refuses to participate in a scheme that involves not outright confiscation, but a secured loan, this sends a signal to the Kremlin: the system is not yet ready to take the step from sanctions to real reparations.^{7 18}For Ukraine, this means that the fight for every euro and pound of support will continue not only on the front lines, but also in the negotiating rooms with bankers and regulators.^{3 11}.

Sources

1. ZN.UA / Financial Times: British banks oppose plan to use Russian assets for loan to Ukraine
2. LIGA.Finance: FT: UK banks oppose using frozen Russian assets to lend to Ukraine
3. RBC-Ukraine: EU close to agreement on Russian assets and Ukraine loan
4. European Parliamentary Research Service: Confiscation of immobilized Russian sovereign assets – state of play
5. European Parliament Study: EU sanctions and Russia's frozen assets
6. CEPA: Russian Assets – Milking the Sacred Cow
7. Analytical materials from European and transatlantic think tanks on the confiscation of Russian sovereign assets
8. Euronews / FT: ECB declines to provide emergency liquidity for Ukraine reparations loan
9. European media: discussions on a "reparations loan" for Ukraine at the expense of Russian assets
10. IZI Institute: Using frozen Russian assets as a means of compulsory reparations for Ukraine
11. Reuters: How the West plans to use Russia's frozen assets to finance Ukraine
12. KSE Institute expert assessments on the economic and financial consequences of the confiscation of Russian sovereign assets
13. Notice of statements by G7 finance ministers on readiness to consider full confiscation of frozen Russian sovereign assets
14. International press: analysis on the impact of the possible use of Russian reserves on the global financial system
15. Expert comments on the ECB's position on the "reparation loan"
16. Statement by EU and Ukrainian government officials on Ukraine's external financing needs
17. Analytics on the risks of the flow of reserves from Western jurisdictions to formally neutral centers
18. Reports on the practice of Russian counter-sanctions and the de facto expropriation of Western assets
19. Ukrainian and international publications on the concept of future reparations from Russia
20. International media: political discussions in the G7 and the EU on the post-war security architecture and financing of Ukraine