For decades, they relied on long-term bonds—safe, steady, and predictable—to match their policy obligations. But as interest rates plunged following the 2008 financial crisis, traditional investment models no longer delivered sufficient returns.

Now insurers are embracing alternative investments like private debt, infrastructure, and real estate—often partnering with asset managers and private equity firms to boost yields. This shift is transforming the industry, raising both profit opportunities and regulatory concerns as insurers take on riskier, harder-to-value assets to increase investment returns.

“With interest rates way down after the Great Financial Crisis, the cost of insurers’ pre-2008 liabilities were still high,” says Ramnath Balasubramanian, global co-leader of the life insurance and retirement industry practice at McKinsey & Company. “Insurers needed to find ways to de-risk their balance sheets and deploy capital more efficiently.”

Slowly but surely, they are finding ways. The solution for most insurance companies has been twofold: Sell off swaths of high-cost legacy obligations to reinsurers to free up capital, and invest more of their premiums into alternative assets: most notably private debt with higher yields and risks than investment-grade bonds. Insurance companies across global markets have been building, buying, and partnering their way to better investment returns for the past decade.

Private equity firms in the US have been a major catalyst to transformation in the insurance industry globally. Big firms like Apollo Global Management, Brookfield Reinsurance, and KKR have launched or bought insurance companies since the financial crisis; others, like Blackstone and Carlyle, have taken minority stakes in other insurers.

The operating model is straightforward: Buy legacy books of insurance liabilities and reinvest the underlying assets into higher-yielding investments. Since the financial crisis, private equity firms have completed over $900 billion in transactions acquiring insurance liabilities worldwide, according to McKinsey research. They now have a 13% share of the US insurance market—up from 1% in 2012—and account for 35% of new sales of US fixed and fixed-index annuities, the consultancy reports.

“The search for yield was the motivation,” says Meghan Neenan, a managing director at Fitch Ratings, who provides ratings for asset managers. “The success they’ve had in terms of returns has been significant, and the migration in insurance portfolio profiles is still ongoing.”

Investing more in private markets and alternative assets arguably heightens insurance companies’ diversification, but it also increases risks. “Their investment portfolios are generally less liquid,” notes Neenan. Insurers’ demand for private loans—most of which have floating interest rates—has continued to grow as rates have risen.

Italian insurance giant Generali, on the other hand, is growing its asset management operations. The company has made several major acquisitions recently, including a deal to buy investment manager Conning from Cathay Life Insurance last year. Generali also paid $320 million for a 77% stake in MGG Investment Group earlier this year. The US firm is focused on direct lending to mid-market companies. Like a growing number of insurers, Generali is building out its own direct-lending platform.

In January, Generali announced a transformational deal, agreeing to merge its asset management operations with Natixis Investment Managers, owned by Groupe BPCE. The 50/50 joint venture will manage €1.9 trillion in assets, making it the ninth largest asset manager globally.

“The new entity would be ideally positioned to further expand its activities for third-party clients,” the insurer said in a January statement, “also thanks to Generali’s commitment to contribute a total of €15 billion in so-called seed money over the first five years to launch new initiatives and investment strategies in the alternative investments sector (particularly in private markets).”

As the private debt markets evolve into new areas like asset-based lending and equipment leasing, large asset managers will increasingly be leading the way. The big transactions recently between insurers and asset managers in Europe are only the most obvious sign of industry consolidation and restructuring. Smaller deals to reinsure liability risks and expand insurance investment platforms are happening across global markets.

Asia is the next frontier, particularly Japan, which has about $3 trillion in life and annuity reserves in force, according to the Society of Actuaries (SOA). To date, most of the activity there has been on the liability side of insurance company balance sheets as Japanese insurers become more comfortable with block reinsurance transactions. Notable recent deals include the reinsurance by KKR-owned Global Atlantic of a nearly $4 billion block of Manulife Japan whole life policies, and a ¥700 billion (about US$4.7 billion) block of Japan Post Insurance annuities by Reinsurance Group of America.

The SOA estimates that as much as $900 billion in Japanese insurance obligations could be reinsured in the coming years thanks to new regulations mandating higher capital reserves that come into effect this year.

The global insurance industry is still on a path of transformation. “I think we’re somewhere in the middle innings of this evolution,” says McKinsey’s Balasubramanian. “Many insurers are still determining whether they will build, buy, or partner for new investment capabilities, and the deals are now happening in both directions.”

All the activity is making insurance regulators’ jobs much harder. The assets backing insurance obligations have become more opaque and more difficult to value as companies have expanded their investment landscapes. The National Association of Insurance Commissioners (NAIC) in the US launched a task force in February to establish principles for updating risk-based capital solvency formulas for the industry.

“The extended low interest rate period that followed the Great Financial Crisis created an industry trend to search for yield in investment portfolios, resulting in a major shift in the complexity of insurers’ investment strategies, resulting in more liquidity risk than historically seen,” said Wisconsin Insurance Commissioner Nathan Houdek, a task force co-chair, in an NAIC statement.

The Bank of England, within which the financial services regulator Prudential Regulation Authority operates, warned in its Financial Stability Report last year of growing risks at insurance companies owned by private equity and in the broader industry due to the shift toward private-debt investments. “This business model, while promising benefits, has the potential to increase the fragility of parts of the global insurance sector and to pose systemic risks if vulnerabilities are not addressed,” The Bank stated.

For now, insurers see the opportunities in alternative investments as worth the risks. Insurance companies and asset managers are increasingly in competition to build better investment platforms, but they also make natural partners. The former generate lots of cash while the latter focus on getting better investment returns in public and private markets.

“The deals will continue because they’re beneficial for both parties,” says Neenan. “Insurers with long-term investment horizons get higher yields for patient investing, and alternatives managers collect fees on the assets.”

A match made in heaven … for the time being.

Publicly traded stocks and bonds have been great investments over the last 15 years, but wealthy investors are increasingly looking for alternatives to what the public securities markets offer them.

Whether from fear that public stocks are overvalued, that inflation will rise again, or that market volatility will increase going forward, wealthy investors want a change from the traditional.

Private banks are gearing up to help provide alternatives.

“Historically, [private investors] have been under-allocated to alternative assets compared to institutional investors, but we’re seeing a strong rise in demand,” says Mark Sutterlin, head of alternative investments at Bank of America Private Bank and Merrill Lynch. “We think most of our clients would be better off with an alternatives allocation around 25%.”

That would represent a huge shift in investing behavior for high-net-worth (HNW) investors. According to a 2023 report from consulting firm Bain & Co, ultra-high-net-worth investors and family offices with more than $30 million in assets already have 22% of their wealth invested in alternatives. But those with $5 million to $30 million in assets allocate only an average 3% to alternatives and those with $1 million to $5 million just 0.7%.

With individual investors and family offices holding more than half of the $289 trillion in global assets under management, that represents a huge, largely untapped pool of capital for alternative asset managers. It also represents a major challenge for private bankers aiming to help their HNW clients navigate new investment markets.

Preqin, an alternatives research firm, is forecasting that alternative assets under management—including private equity and credit, venture capital, hedge funds, real estate, and infrastructure investments—will rise from $16.8 trillion at the end of 2023 to $29.22 trillion by the end of 2029. Increased fundraising from private banks, family offices, and individual investors is expected to fuel the growth.

While Preqin is forecasting growth in all segments of the alternatives market—including hedge funds, which suffered an abysmal 2022 when both stocks and bonds took double digit losses—private equity and credit are the hottest markets.

“There’s been a tremendous amount of interest in private equity and private credit all along the wealth spectrum,” says William Whitt, analyst with Datos Insights who focuses on wealth management. “I expect the strong demand will likely last a couple more years as long as the economy stays healthy.”

Fueling the demand are kinder, gentler investment offerings from private asset managers.

“The preeminent sponsors recognize the opportunity and have become better partners with investors,” says Sutterlin. Large firms like Blackstone Group, KKR & Co, and Apollo Global Management have launched funds with smaller investment minimums, lower fees, greater transparency and even a degree of liquidity (see sidebar). “Investors are getting better access to the best strategies on better terms. Everything is changing in favor of end investors.”

Some banks are launching separate entities to help shepherd investors into private markets. Deutsche Bank launched DB Investment Partners just over a year ago to give institutional and HNW investors access to private credit investments. With floating interest rates, these vehicles have been in high demand for the last several years. DB Investment Partners operates independently and Deutsche is retaining its existing private credit business.

While the demand for alternatives is most developed in North America and Europe, Asia too is trending alternative.

“We’re seeing much more demand from our clients across the spectrum of alternative assets,” says Chee Jiun Wen, head of alternative investments at Bank of Singapore. “It’s not just about reducing risks but generating alpha and accessing opportunities you can’t get in the public markets.”

The bank, formerly known as ING Asia Private Bank, has been hiring people with institutional backgrounds and experience in alternatives markets. Its roughly 500 relationship managers get in-house training on alternative asset classes and how to incorporate them into client portfolios.

“We’ve been able to expand the investment universe for our clients and provide access to more investment solutions and investing strategies,” says Chee.

The bank is doing the same for its financial intermediary clients. Last year it launched a digital platform in partnership with global fintech firm iCapital that provides independent asset managers (IAMs) with access to over 1,600 funds from 600-plus firms. The site also offers research and tools for due diligence and reports and performance updates on fund investments.

“We’re a first mover in this space in Asia,” says Chee. “We’re giving IAMs the power to pick and choose the managers and investing strategies that make sense for their clients.”

For private banks, helping wealthy clients increase their exposure to alternative assets smoothly and successfully will be a key differentiator in the wealth management industry going forward. While most have experience investing in alternatives for their wealthiest clients, the scale of the expected shift into alternatives in the HNW client space will be a major challenge for firms.

“There is a huge opportunity in private wealth, but banks need to be prepared for the growth,” says Trish Halper, CIO in the family office practice at Northern Trust. Halper’s clients have been investing in alternatives for decades with average allocations between 30% and 50%. “Family offices were early adopters in the alternatives space and high-net-worth investors are now catching up.”

The workload for financial advisors is significantly heavier with private market assets than with publicly traded stocks and bonds.

“The dispersion of returns is much wider in private markets than in public markets, which makes manager selection really important,” says Halper. “Banks need to devote enough resources for strong due diligence because access to information and data is much less in the private markets.”

The sourcing of quality investments is just the beginning. Private asset portfolios need to be diversified across sectors, vintages, and financial sponsors to reduce risk; the investments and the asset managers themselves need to be monitored; capital call obligations must be executed; and distributions need to be managed when investments mature.

“There are a lot more operational and administrative tasks involved in private investments,” Halper notes.

The growth in alternative asset markets represents a major shift in the private banking landscape. Banks across global markets are investing in technology and talent to handle the transition and to ensure that alternatives allocations help to optimize clients’ portfolios and meet their financial goals.

“The capital markets have evolved,” argues Bank of America’s Sutterlin. “For investors who want a truly diversified portfolio, if they’re not invested in private markets in both equities and fixed income, they’re not in a big part of the capital markets now.”

Not anymore. The development of open-ended, “evergreen” funds that allow investors to periodically redeem shares—typically, monthly or quarterly—and carry relatively low investment minimums have made private market investing accessible to just about everyone. The new funds’ investing strategies run the gamut. Some focus on specific sectors of the market while others are more diversified.

“Anyone can get exposure to private investments now,” says William Whitt, analyst with Datos Insights. “New fund structures are generating a lot of interest with retail investors.”

Evergreen funds are intended to attract investors further down the wealth spectrum from the traditional buyers of private equity and debt stakes. High-net-worth (HNW) investors, with more than $1 million in liquid assets, and the mass affluent, with less than $1 million, have virtually no holdings in private markets. En masse, they represent a huge new source of potential capital for private equity and debt managers to tap. A survey of alternative fund managers by Ernst & Young last year found that accessing private client capital was the top strategic priority for managers.

The number of funds being floated, largely by the biggest financial sponsors like Blackstone, KKR, and Apollo, is growing rapidly. According to FS Investments and Prequin data, more than 500 evergreen funds held over $400 billion in assets in 2023. Last October, KKR and mutual fund giant Capital Group filed to launch two hybrid fixed-income funds investing in public and private debt.

The filings underscore an effort to make private markets more accessible to a broader client base, the firms touted in a press release.

“The product structures are much more client-friendly and they’re bringing a lot more investors to the table,” says Mark Sutterlin, head of alternative investments at Bank of America and Merrill Lynch. “You need discipline to put together a diversified portfolio, but advisors can implement a plan in a more turnkey manner now.”

The development of the secondary market in private investments has also opened up opportunities for new buyers in the private space. Secondaries are existing stakes in private asset funds that are sold to other investors. The buyer gets into the fund later in the investment lifecycle but is still obligated to meet any further contracted capital calls from the general partner.

Some secondaries are simply the stakes of existing limited partners in the fund while others are transactions led by the general partner. The GP can use the money either to continue holding assets in the fund or to cash out existing investors. In some cases, investors can get discounts on secondary offerings, which will have a shorter time horizon than primary fund investments.

“Secondaries can be a good way to start an allocation,” says Trish Halper, CIO in the family office practice at Northern Trust. “They’re further along in the investment cycle and investors can get distributions quicker.”

Alternatives research firm Preqin is forecasting that secondaries will be the fastest growing segment of the alternatives market over the next five years.

The proliferation of new fund structures and the development of the secondaries market is bringing new investors to the private asset markets. Some close observers, however, are skeptical of this “democratization” of the market. “It feels like the latest fad,” Whitt says. “Everyone is running after it because everyone else is without really thinking about why.”     

Global Finance: What’s the outlook for the global economy?

Bill Sterling: This year, many global equity markets are at or near record highs on expectations of a global economic soft landing. Sluggish growth is forecast for 2024 to reflect the impact of higher interest rates put in place over the past two years. However, there is a great deal of optimism that higher rates have done what they were supposed to and brought inflation down, which will allow central banks to pivot toward cutting rates later this year. Equity markets are riding that wave of optimism that lower rates will fuel growth over the next few years.

GF: Does the optimism extend to all major markets?

Sterling: There are differences in every region. In Latin America, for example, central banks began raising interest rates before the Federal Reserve and many are now already in easing mode. Last year, average equity returns in Latin American markets were 34%—well ahead of the US, Japan and Europe. Japan, on the other hand, recently exited its negative interest rate policy for the first time in eight years, and Japanese stocks finally rose above their 1989 peak for the first time.

In the US, investors were expecting a recession in the second half of last year and instead saw 4% growth and declining inflation. In Europe, the economic data is considerably weaker than in the US, but inflation has come down there, too. As in the US, markets are looking for the European Central Bank to pivot to rate-cutting later this year. A common thread is that all regions are still living with the aftershocks of the pandemic.

GF: Is China the outlier in the global economy?

Sterling: The big issue with China is still the property market. The country is seen as dramatically overinvested in the housing sector, and without a recovery in housing, it’s hard to get an overall recovery. Investment in property declined 9% in the first two months of this year after double-digit declines last year. The recent 10-year bond yield of 2.28% is below the lowest level we saw during the pandemic, and stock prices are 55% below their most recent high in 2021. The Chinese equity market looks cheap by many metrics, but the geopolitical issue is still hanging out there. The nightmare scenario of China invading Taiwan is something no one wants to think about. China may not be out of the woods yet, despite cheery announcements from the government. 

GF: What’s ahead for M&A and corporate finance this year?

Sterling: Buoyant markets usually result in buoyant M&A activity. If the Fed holds interest rates higher for longer, it could disappoint markets, but if they cut rates more aggressively, there will certainly be interest in refinancing. Investors, however, are finally getting compensated more for risk-free investments. The 4.3% yield on the 10-year US Treasury bond is a nice return if the Fed gets inflation down to its target 2%. One concern is that with spreads so tight in the corporate bond market, accommodative monetary policy may be good for stocks but less so for corporate bonds.

GF: How has AI impacted financial market valuations?

Sterling: The enthusiasm for AI has been a driver of equity markets—particularly in the US. Some strategists are talking about the new Roaring ’20s, based on AI delivering much higher productivity growth in the economy. In that context, price/earnings ratios in the US may be so high because they’re discounting more favorable long-term growth scenarios.

GF: How do geopolitical risks factor into your forecasting?

Sterling: In recent decades, how markets react to such shocks has largely been about what they mean for oil prices. Often markets have counterintuitive responses to big geopolitical shocks, which suggests to me that, as an investment strategist, you need to be humble when considering what these shocks may mean for financial markets.

“You could expect changes given the recent issues,” says Peter Arment, Boeing analyst at Milwaukee-based investment firm Baird. “There was obviously pressure on the board to react.”

The aerospace giant’s quality control has been under a microscope since Boeing 737 Max planes crashed in 2018 and 2019.

Manufacturing quality issues resurfaced in January, after a door panel blew off an Alaska Airlines 737 Max 9 plane. A subsequent FAA audit found dozens of problems with Boeing’s manufacturing and control processes. The Max 9 planes were grounded briefly, but most are now back in service.

Calhoun, who received more than $5 million in restricted Boeing stock early last year to induce him to stay through the company’s recovery process, chose not to remain at the helm.

“It has been the greatest privilege of my life to serve Boeing,” he wrote in a recent letter to employees. “The eyes of the world are on us, and I know that we will come through this moment a better company.” Most analysts expect the company to pick an outsider as its next CEO. Pope, who joined Boeing in 1994, was seen as a potential successor to Calhoun, but may have her hands full with the commercial plane division. While Arment includes her on a shortlist for the top slot that includes insiders and near-insiders like board member David Gitlin and Pat Shanahan, CEO of Spirit AeroSystems and a former Boeing executive, respectively, he believes she might get edged out. “Stephanie Pope is a very talented executive, but she comes from the finance angle and I’m not sure that’s the direction the board will go,” Arment says. “They’ll do an exhaustive search and I think the most likely choice will be an engineer.”

Global Finance: What are you and your advisory firm working on these days?

André Casterman: We look at technology from a commercial adoption and market engagement point of view. We work with business experts and policy stakeholders to change laws where needed. The adoption of technology is limited if regulators don’t recognize the validity of those technologies, so it’s important for technology leaders to work with regulators around the world. For example, laws like the UK’s Bill of Exchange Act of 1882 required updating to enable digital documentation. The English law is one of the main legal systems in global trade and negotiable instruments. Last year, the Electronic Documents Act was passed, and is now a supplement to the Bill of Exchange Act. The technology is like electronic signatures, whereby the documents like bills of exchange, promissory notes and warehouse receipts are the same, but instead of printing and signing them, you create an electronic document.

GF: How is the practice of asset securitization transforming trade finance?

Casterman: The securitization of trade receivables is a big change in the market—particularly in the US. It offers opportunities for non-bank lenders to enter the small-business market. There are the traditional banks in the trade finance market, but there are also now alternative lenders funding small and midsize businesses [SMEs] and extending working capital to them by buying receivables. They don’t have the big balance sheets that the banks have, so they look for third parties to help fund their activity. Entities with liquidity—like asset managers, pension funds and family offices—are looking for alternative asset classes to invest in. They don’t want to fund a small business directly, but they’re happy to fund a bank or supply chain platform that is.

GF: How important are these smaller lenders in the trade finance market?

Casterman: The smaller lenders are critical because the big banks have pulled back from the SME market since the financial crisis. The US market has applied securitization to a lot of asset classes. In Europe, however, it is less common, certainly in trade finance. Technology is key here. The availability of off-the-shelf technology and cloud capabilities enables lenders to automate the securitization of trade finance invoices. The big banks used to be the only ones who could build out a securitization model. Now it’s becoming mainstream for smaller players as well. They take care of the end customer—usually a small- or mid-cap business—and they source liquidity through securitization.

GF: Why hasn’t blockchain technology had as big an effect on trade finance as expected?

Casterman: When the banks discovered blockchain several years ago, there was a lot of excitement about it. They created consortia to develop projects like we.trade, Komgo and Marco Polo, but they took the wrong approach. They tried to develop a new system rather than working with existing vendors and platforms. You need to consider the existing ecosystem because the banks aren’t going away, and corporates aren’t going away. After a few years of funding the consortia, the banks lost patience and pulled the plug.

The key feature of blockchain is its traceability. You can track the lifecycle of an asset from start to finish, like Swift has done with GPI [global payments innovation] without blockchain. It is not the most important technology in trade finance. The workflow management is more important. You must consider where new technologies like blockchain can really make a difference. That’s what we’re doing with the DNI [digital negotiable instrument] initiative.

GF: With the recent SEC approval of applications to list exchange-traded funds [ETFs] that track the price of bitcoin in the US, do you expect corporate treasurers to invest more of their cash reserves in cryptocurrency?

Casterman: No, I don’t. I don’t think we’ll see a lot of companies doing what MicroStrategy does. Cryptocurrency is a difficult asset to manage. The bitcoin ETFs may be added to the existing set of investment products to consider, but I don’t think the corporate market will be buying more bitcoin on crypto exchanges.

GF: How important is security in the trade finance environment?

Casterman: Security is critical because trade flows contain highly confidential things like pricing information. You don’t store business information on the blockchain because it is stored forever. We can use it as a common registry to verify that documents are still valid, but confidential information must be removed.

The technology approach today is interoperability. Not all players operate on the same platform, but the internet is enabling a layer of interoperability. Corporates can use the platforms they want and interoperate with banks using different technologies. The technology has demonstrated it can be achieved. It’s a matter of adoption, and its ongoing work. We’re working with European authorities to create a legal framework around the notion of open finance. We have it with payments and signatures but we’re looking at how to achieve it in open finance.

GF: How is artificial intelligence being used in the trade finance industry?

Casterman: The banks were expecting some magic from blockchain, but it didn’t happen. Generative AI is where the magic will happen. With all the data that banks have on trade and payments, end users can query the system supported by AI. Its greatest value may be around compliance and fraud detection. AI can provide lenders insights about what is hard to spot. There needs to be approval of the use of AI in some institutions, but there are many vendors in the space now.

GF: Are the new alternative lenders democratizing trade finance?

Casterman: Trade finance is not just a banking business anymore. In the UK, we see a lot of non-bank lenders in the market now. It used to just be [receivables] factoring companies. Now we have platforms that can finance individual invoices. It can be risky, so they employ credit insurance at the invoice level. Trade finance is also being embedded into entities that manage B2B transactions. We’ve seen it with AliBaba. Other new solutions are coming because we need better ways to fund the SME market. The banks can be bypassed. They think the SMEs are too risky for them anyway. The banks aren’t going away from trade finance, but they are increasingly focused on their top-end clients.

GF: How do tokens and tokenization play into the trade finance market?

Casterman: The first half of this year should see the release of more investment token products. Tokenization can lower the cost of the investment process. The goal is to attract smaller investors with lower costs and higher yields. Tokens can make trade finance more accessible to a wider set of institutional and retail investors.

GF: How can new technology and new market entrants reduce the gap between supply and demand for trade finance?

Casterman: There is a growing trade finance gap that people are talking more about. With the wave of regulations that we’ve experienced since the financial crisis, the banks’ costs of due diligence on their corporate customers are higher. They are pulling back on smaller relationships because they’re losing money on them. I think technology is key to making capital more accessible to smaller businesses in a low-cost manner.

The new lenders are extending trade finance from a banking activity to a pure lending activity, and the capital markets are helping these lenders extend credit. It’s an attractive market because the yields that investors can get through alternative lenders are higher than big banks get working with their blue-chip clients. There is a real rationale for this market to grow, but we need technology and new market entrants.

Since 2022, the dramatic rise of the US dollar against virtually every other world currency has wreaked havoc on the profits of US multinationals as the value of their foreign earnings plummeted. In the second quarter of 2023 alone, the average hit to earnings for publicly traded North American companies was a whopping $0.05 per share, according to the Quarterly Currency Impact Report conducted by consulting firm Kyriba. Currency volatility has moderated somewhat in 2023, but shifting expectations for inflation and future interest rates have made the environment no less challenging for finance executives.

“The US dollar has been meandering this year, and that still causes headaches for treasurers because of the peaks and valleys,” says Andrew Gage, senior vice president at Kyriba.

Gage’s firm tracks the impact of currency fluctuations on the financial results of 1,700 public companies, half in North America and half in Europe. In the second quarter of 2023, companies disclosed a combined $29.14 billion in currency impacts on their financial results. The actual numbers are far larger for the whole group, as most companies do not quantify the impact of currency movements on their results. The trend, however, is clear. FX volatility remains high, and the pain is felt across global markets as the US dollar fluctuates.

“Currency volatility is like Jupiter’s Red Spot: It moves around a lot,” says Gage. “We saw some of that in European results for the second quarter, and I think companies in Europe may experience more [currency] headwinds than those in the US through the end of this fiscal quarter.”

Corporate reactions to the increased volatility in FX markets vary. A survey of 245 corporate treasury departments worldwide conducted in 2022 by Deloitte & Touche found that 76% were using derivatives to hedge their currency exposures, while 24% reported other preferences. A large plurality of respondents, 45%, ranked FX volatility as one of the top five challenges for their organization. “The volatility has come down from last year, but a lot of organizations are just beginning to come to terms with it,” says Erik Smolders, a managing director at Deloitte’s Treasury Advisory Services. “Some companies want to eliminate their FX exposures; others see it as a cost of doing business and are willing to take some of it on the chin.”

Invariably, those taking it on the chin emphasize the results of their foreign operations in nominal numbers without adjusting for changes in currency prices, hoping that investors will look through currency fluctuations and focus on underlying business trends. “It depends on how companies have been talking to their investors over the years,” says Smolders.

However, the increase in volatility has upped the ante for corporate finance executives, and many are now looking for more-effective ways to manage their FX risks. “I’ve had many more companies ask for assessments of their hedging programs in the last 12 months,” says Smolders. “They want to know how to handle their exposures better and manage costs.”

US and Asian multinationals, typically less inclined to hedge currency risks than their European counterparts, are increasingly looking for solutions to manage risks in a more volatile environment. Netflix is a case in point. As a global leader in video streaming services, Netflix has exposure to more than 45 currencies in its operations and has historically tolerated the swings in reported earnings due to currency movements. However, 2022 was a tipping point for the company. CFO Spence Neumann revealed in a 2022 third-quarter earnings call with analysts that “there’s about 2.5 points of FX drag in our margin. That equates to about—it’s about $1 billion of revenue drag.”

In 2023, the company implemented an FX risk management program to limit the impact of short-term currency movements and reduce the need to raise prices or cut costs in response to them. Netflix disclosed it would use standard forward contracts to hedge some—but not all—of its currency risks.

When managing currency risks, the solution can sometimes be as painful as the problem. With the heightened volatility in currency markets, the cost of hedging risks has risen dramatically for companies since the US Federal Reserve began raising interest rates in early 2022. Treasury executives now need to decide when the higher costs of hedging risk outweigh its benefits.

“The responsibility of the treasury department to manage currency risk isn’t only about hedging. It’s also about managing the cost of hedging,” says Kyriba’s Gage. “A lot of corporate risk management programs were established in low interest rate environments. Now that rates are back up, companies need to think differently about them.”

Deloitte’s Smolders also advises his clients to take a measured approach to identifying foreign currency exposures before deciding if and how they should be hedged. He recommends that companies take steps before considering what derivative instruments to use for hedging purposes.

First, companies should determine if they must take on a currency risk or if they can offload it to suppliers or customers and avoid worrying about currency price fluctuations.

Second, larger companies can reduce the amount they need to hedge by netting their currency exposures in costs and revenues across their organizations.

Third, intercompany hedging activities have tax issues. If a company can hedge its net currency exposure, it should consult with tax advisers about where and in what markets to undertake the hedge.

Finally, accounting for hedges remains an issue in currency-risk management. Most companies use simple forward currency contracts for hedging because they are simple and likely to qualify for favorable hedge accounting treatment. When derivative hedges are deemed ineffective, which requires complicated calculations, the results must be recognized in the income statement.

The key to good currency risk management is having good data from which to make decisions. For many large companies, producing that data is challenging, since different parts of their organization still operate in silos.

“Companies need to have confidence with their currency exposures, and they need the ability to analyze them across their organizations,” says Gage. “They need the right data at the right time.”

That remains an elusive goal for most large companies. In the 2022 Deloitte survey, the largest number of respondents (83%) cited the lack of visibility into their currency exposures and the reliability of their forecasts as a key challenge they faced in managing FX risks. The second most-cited challenge (71%) was the manual identification and capture process for those exposures.

“Getting good data out of enterprise resource planning systems is a consistent challenge for companies,” says Smolders. “Companies operating with more than one system have more problems.”

The renewed volatility of the currency markets in the past two years is a powerful motivator for companies to accelerate the digitalization of their treasury function. This can provide the data they need to make better decisions about their overseas investments and operations. Global financial executives will struggle to control them effectively without an accurate big-picture view of companywide currency and financial exposures.

The volatility is not likely to decrease anytime soon. Wars, inflation, supply chain crises, and divergent central bank monetary policies will likely continue to make FX markets more treacherous for global corporations.

“Companies have had to navigate through sustained crises for about four years now, and I don’t see that changing,” says Gage. “Currency volatility is now a front-burner issue for them.”

Global Finance selects its award winners based on objective factors such as trans-action volume, market share, breadth of offerings, and global coverage, as detailed in public company documents and media reports.

Our criteria also include subjective factors such as reputation, thought leadership, customer service, and technology innovation, using input from industry analysts, surveys, corporate executives, and others. Although entries are not required in order to win, decision-making can be informed by submissions that provide additional insight.

Last year was nothing short of historic for our Best Global Foreign Exchange Bank, UBS. Between the takeover of its longtime rival, Credit Suisse, in what analysts call the most important banking M&A in history, and the substantial growth of its foreign exchange (FX) operation in developing markets, the behemoth bank has done it all with unrivaled excellence.

The takeover of its rival’s operation led to substantial growth in clientele and traded volume in European markets, resulting in solid profitability growth. It also led to key additions to UBS’ FX team, further expanding the bank’s knowledge.

At the same time, UBS teams in Asia, the Middle East, and Latin America have kept working relentlessly to improve the bank’s digital offering for emerging market currencies.

As a result of this unmatched year, the Swiss-based giant now ranks as one of the largest private wealth managers in the world, with undisputed market share in Europe. It has also watched its emerging markets FX operation mount into one of the world’s largest, expanding the bank’s offerings to its clients worldwide.

Among the bank’s most significant global technological breakthroughs is UBS’ FX Engine Room, with which the bank can place all analytics in one place for use by its global sales force, thus broadening the footprint of its operations to clients looking to trade currencies on a global scale.    —Thomas Monteiro

Driven by constant strategic investments and rock-solid market positioning, BBVA takes home our award as the Best FX Bank for Corporates in 2023.

With a global presence covering key markets such as the US, Mexico, Colombia, Peru, Argentina, and Europe; adherence to the Bank for International Settlement’s FX Global Code; and a commitment to compliance, BBVA offers a comprehensive FX-services suite that caters to both the broader and the most specific needs of corporates worldwide.

The Spanish-based bank has maintained its core principles, providing world-class strategy and research-tailored insights while investing in cutting-edge technology.

Notable innovations have included improved onboarding with eMarkets and dynamic FX pricing in Colombia, 24-hour FX trading, and a customized mobile app for small and midsize enterprises across the network.

BBVA’s accomplishments among corporates helped the bank strengthen its leadership in Mexico, Peru, Colombia, Spain, and Turkey. The bank improved its position in Argentina, where it increased its share in the corporate FX spot market and sustained leadership in imports and exports.          —TM

With solid growth in key emerging markets and an increasing foothold in both the US and Europe, Santander reaffirmed in 2023 its status as a pivotal institution for corporations operating in some of the globe’s fastest-moving markets.

By providing extensive coverage with over 50 currency pairs; an unmatched clientele; and knowledge of the market in countries such as Brazil, Mexico, Argentina, and Spain, the bank can guarantee that its clients stay ahead of the curve amid the intrinsic difficulties associated with emerging market currency trading.

In a year in which currency volatility proved a challenge for those based in both developed and developing markets, Santander’s comprehensive trading platform offers diverse options for trading across various channels. It includes streaming capabilities for online pricing in spot, forwards, swaps, non-deliverable forwards, FX options, and structured product trading.

The Spanish-based giant also provided top-of-line global research, market updates, strategies, and FX publications to its clients, ensuring an edge over the competition.

Moreover, with a dedicated team of expert trading and sales professionals based in several key markets for emerging markets currencies, Santander’s clients were able to navigate the complex FX landscape confidently and efficiently.            —TM

Liquidity concerns spilled over in 2023 into some of the world’s key markets due to the failures of historical powerhouses such as Credit Suisse and Silicon Valley Bank. Farther south, in Brazil, Itaú Unibanco not only weathered the challenges but also achieved outstanding performance metrics.

These numbers ensured the top-line stability of the bank’s reserves and liquidity offerings, showcasing Itaú’s resilience in the face of global economic uncertainties.

In 2023, the Brazilian financial giant posted an impressive net income of $6.3 billion and a loan portfolio amounting to a robust $224.5 billion. Backed by solid reserves and growing profitability, Itaú’s FX operation thrived, showcasing an above-average return on equity of over 21%.

This trend was also backed by the bank’s continuing investments in technology. Via an impressive compound annual growth rate of 43.5% since 2020, these helped guarantee speed and ease whenever clients needed large sums of foreign currency.

As a result of the bank’s best-in-breed liquidity offering, it effortlessly operated some of the largest FX transactions of its history, such as a $1.2 billion dividend payment for a prominent global beverage company and a single-tranche transaction totaling $1.3 billion for a client in the energy sector.      —TM

Bank of New York Mellon (BNY Mellon) won the Best FX Market Maker award due to its market position, excellent client service, financial performance, and continued technological development. BNY Mellon is one of the top five global US dollar payment clearers. Its client franchise includes 97 of the top 100 banks worldwide and 89 of the top 100 investment managers.

BNY Mellon Treasury Services added new business across strategic payment solutions and liquidity products. It drove higher payment volumes while generating traction as it built its digital payments and related FX and trade businesses. FX revenue has increased, primarily driven by the volume of client transactions, including hedging activities. The bank is a leading provider of global payments, liquidity management, and trade finance services. The bank has extensive experience providing trade and cash services to financial institutions and central banks outside the US.

In emerging markets, the bank is active with custody, global payments, and issuer services. BNY Mellon is a full-service global provider of FX services, actively trading in over 100 of the world’s currencies. It serves clients from trading desks in Europe, Asia, and North America.     —Darren Stubing

The 2023 global leader in sustainable finance, Societe Generale (SocGen) once again proved its core commitment to meeting the diverse demands within the broad environmental, social, and governance (ESG) spectrum.

The global sustainability markets’ recovery from the challenges of 2022 is expected to propel full-year 2023 green, social, sustainable, and sustainability-linked bond issuances to between $900 billion and $1 trillion, according to S&P Global. SocGen’s customers were able to enjoy best-in-breed market positioning, gaining a significant edge over the competition.

The French powerhouse’s FX team helped support its ESG products for customers worldwide, including the bank’s flagship ESG benchmarks, sustainability swaps, sustainability options, and sustainability-related derivatives.

The bank also stepped on the gas by providing hybrid trade financing offerings to its customers, linking traditional finance to sustainability goals, thus helping to fuel ESG investments the world over.

Additionally, in November, SocGen launched its first-ever digital green bond, registered directly on the Ethereum public blockchain. This strategic move aims to enhance transparency and traceability in ESG data and broaden the bank’s currency-related sustainable offerings.     —TM

JP Morgan was awarded Best FX Commodity Trading Bank, as its well-executed strategy consolidated its FX commodity trading activities, capitalizing on its top ranking in fees and market share in investment banking.

The bank is the top ranked in research, underpinning its strength in FX commodity trading. It has a longstanding leadership position in energy, power and renewables. It has made significant investments in the low-carbon energy transition. From local production to worldwide trading, JP Morgan has a strong presence in the metals and mining industry, including key areas in the Americas, Europe, the Middle East, Africa, and Asia-Pacific; and the bank has deepened its footprint in Australia and India.

JP Morgan has achieved excellence in FX commodity trading execution, aided by technology and analytics. Its FX and commodities trading platform provides access to fast and reliable electronic market-making and order placement across every commodity class—including base metals, precious metals, energy, agriculture, and commodity indexes—with tradeable prices in multiple currencies. Its platform can send over 120 currencies and receive more than 40 across 200 countries.  —DS

FirstRand, the operator of the Rand Merchant Bank (RMB) corporate investment bank and of the retail and commercial lender First National Bank (FNB), for South Africa and the region, is this year’s award winner as Global Finance’s Best Foreign Exchange Bank for Africa. This top African financial institution has been rewarded for carefully marshaling its foreign exchange (FX) business and its mobile and online offerings.

Offering FX solutions from personal travel to corporate, remittance partnerships with international companies such as PayPal and MoneyGram, and an FX clearing hub for African banks, FirstRand has been a trailblazer in the African FX market over the past year.

The company says its mobile application and online enhancements for FX are a “continuous focus for individuals and commercial clients,” adding that “smart messaging such as SMS, emails, and [app push notification] are in progress” for 2024.

Straight-through processing enhancements have made a difference in getting clients to move away from manual payments to platform transactions, with the FNB banking application bringing FX transactions to a readily accessible mobile platform.

FNB and RMB are also building a foothold in the world of cryptocurrency transactions and FX blockchain payments. With an FX staff complement of 599, FirstRand accounts for approximately 33% of all banking sector FX volume in its primary market of South Africa.

A further presence across Africa in countries such as Mozambique, Zambia, Botswana, Namibia, Nigeria, and Ghana saw FirstRand’s regional FX profits grow in 2023 by 15% over the previous year. In August 2023, RMB launched a foreign currency clearing solution for African banks.      

—Tawanda Karombo

DBS Bank is the largest bank in Southeast Asia, with global operations across 19 markets. With its vital FX centers in London, Tokyo, and Singapore, the bank presents itself as a seamless connectivity and liquidity provider with FX products, including nondeliverable forwards, FX swaps, and precious metals. As of 2023, DBS’ one-stop global cross-border payment solution has covered 132 currencies across 190 countries.

The bank’s FX business supports large corporations, multinational corporations, and small and midsize enterprises (SMEs) by offering a spectrum of services, such as sophisticated FX payment with integrated, competitive, and committed FX rates—as well as access to transparent pricing and analytical tools. Regardless of size, corporate clients all have access to efficient and secured FX and forward transaction platforms that safeguard against currency fluctuations.

DBS’ commitment to the FX business is also reflected by the increasing number of employees who have dedicated themselves to it over the years and by the bank’s ongoing effort to build global distribution channels with new technology investments and initiatives.

—Lyndsey Zhang

Raiffeisen Bank International (RBI) has long been a significant player in the Central and Eastern Europe (CEE) banking market—it founded its first CEE subsidiary in Hungary back in 1986—and is today active across 12 countries in the region, with almost 18 million customers and some 45,000 employees.

FX is a large part of the bank’s business, and RBI is actively trading in the currencies of most countries of the region, offering a comprehensive product portfolio with competitive pricing and reasonable rates for more than 100 currency pairs. It has been at the forefront of digital innovation, using cutting-edge systems to speed trading, improve accuracy, and reduce trading costs.

Two years ago, RBI established partnerships with AxeTrading, a fixed-income-trading software company, and with Integral, a leading FX tech provider, to provide real-time streaming of FX prices into bond trading. Since 2021, it has also been rolling R-Flex, a digital solution for FX conversion, across CEE, starting in Romania before RBI in Croatia and Hungary adopted what it describes as a simple yet secure user-friendly platform that prioritizes clients’ needs. The plan is to extend R-Flex across RBI’s operations in other CEE countries, giving customers access to a state-of-the-art system that simplifies and speeds FX trading.

—Justin Keay

Amid the volatile FX landscape of 2023, BBVA managed to secure the top market position in several key markets across Latin America, thus providing its customers with unmatched opportunities and products.

In addition to its unique market knowledge, one of the main secrets behind BBVA’s success throughout the year was its relentless dedication to boosting its award-winning technological capabilities. The Spanish-based bank’s FX operations underwent significant enhancements, showcasing this dedication to innovation and client-focused services.

The onboarding process for eMarkets clients saw substantial improvements, incorporating DocuSign for streamlined and efficient client interactions. The introduction of direct market access marked a pivotal moment, providing FX spot clients with a new algorithmic execution service. Real-time FX application programming interface offerings for external clients, encompassing FX and payments, strengthened the bank’s connectivity.

BBVA further implemented dynamic pricing in Colombia and introduced FX SBP (single bank platform); and BBVA eMarkets in Argentina, covering spot and nondeliverable forwards. Enhancements in FX online services for enterprises in Colombia allow for payments from accounts held in other banks.

These strategic improvements earned BBVA recognition in the Global Finance awards and position the bank as a leading force in the dynamic landscape of FX operations in Latin America.

—Thomas Monteiro

The winner as the Best Foreign Exchange Bank in the Middle East, Saudi Arabia’s Al Rajhi Bank is the largest Islamic bank worldwide and has a dominant franchise in the Gulf Cooperation Council’s biggest banking market. Al Rajhi is ranked as the No. 1 bank in the Middle East for remittances by payment value.

The bank’s FX performance has been boosted by digital transformation. Retail, SME, and corporate businesses have expanded, with escrow accounts growing substantially. Its FX franchise has strengthened, with an increasing number of global counterparties and an extensive peer network of banking and financial institutions, further developing its treasury capability to deal in large FX trades. Al Rajhi’s Treasury Group has increased interbank FX counterparties to improve price and FX flow coverage and to access new markets and currencies. Onboard banknote and bullion interbank counterparties have been introduced to enhance supply, storage, and price economies. Several new module enhancements have been carried out on the core treasury management system to onboard new products.      
—Darren Stubing

Like all global banks, JP Morgan has invested heavily in its IT infrastructure and trading networks over the past decade. Headquartered in New York, the bank is in all major world financial centers. It provides corporate clients with everything from FX trading services to international payment processing, cash flow, and working capital management.

In a more volatile environment for global currencies, size matters. JP Morgan, UBS, and Deutsche Bank are the three largest players in the FX trading markets, accounting for roughly 30% of global FX transactions. The bank has an enormous pool of liquidity, with millions of customers across its consumer, commercial, and investment banking operations. It can execute large spot trades in up to 300 currency pairs internally by matching up customers, or it can work complicated orders across multiple external electronic markets. It is also one of the largest providers of FX derivatives contracts globally.

Technology is a significant selling point for JP Morgan. It employs artificial intelligence to enhance its FX trading algorithms that optimize execution services in all market conditions. It also helps companies to fully digitalize their treasury functions across global operations to give them a clearer picture of their FX and risk management needs.

—Andrew Osterland

Already a powerhouse in the European market, UBS skillfully took advantage of Credit Suisse’s March collapse to achieve once-in-a-lifetime boost to customer growth.

By combining its former rival’s market shares with its own, the bank was able to gather unrivaled positioning, which should remain for years to come, in the continent’s FX market.

Naturally, the M&A came with challenges, as UBS faced the need to regain confidence among former Credit Suisse clients and to onboard its rival’s top-line staff. This process led to a challenging yet rewarding second half of 2023, as customer satisfaction grew while FX margins temporarily compressed.

But despite the intricacies of the merger, the bank has continued to invest in deepening its already best-in-class suite of technological offerings for FX.

With significant improvement across the currency-trading spectrum, from FX swaps with its Neo STIR Analytics platform to improved FX liquidity algorithms with a new smart order router, UBS’ European-based customers enjoy a unique combination of unrivaled market positioning and knowledge with state-of-the-art technological FX products.

—TM

Global Finance: What were the challenges you faced when you were appointed governor of the National Bank of Ukraine and how does it compare to the situation now?

Valeriya Gontareva: Ukraine lost 20% of our GDP because of the annexation of the Crimea and the war in the Donbas. Our balance of payments had collapsed, the banking sector was in ruins and there were unsustainable imbalances in all sectors of the economy. We were going through the so-called perfect storm of a macroeconomic, currency and banking crisis when I was nominated governor of the central bank.

This time, we lost 50% of our GDP, tax revenues are down 70%, exports are down 60% and we’ve had an estimated total economic loss of $564 billion so far due to the war. The main threat now is that nine out of 10 Ukrainians could be pushed into poverty.

GF: What reforms did you make as governor of the central bank and how has the banking sector held up during full-fledged war?

Gontareva: In 2014, we had zero chance of survival without the help of the IMF, Europe and America. All the reforms we implemented were supported by the international community. We shifted to a flexible exchange rate, adopted a new monetary policy of inflation targeting, cleaned up the banking system and rebuilt internal processes. When I came to the central bank, there were 180 banks and when I left there were 70 after we closed zombie banks. We built a powerful and independent central bank. I’m very proud of what we accomplished, and the banking system has now demonstrated resilience in wartime.

GF: What does Ukraine need now from the international community?

Gontareva: Ukraine needs three kinds of support: humanitarian and military aid; help financing a monthly budget deficit of $5 billion; and help for the eventual reconstruction plan. The response on the first front has been fantastic. When we win the war—and Ukraine will win the war—we will need more than just financing to rebuild Ukraine. We will need technical assistance and other kinds of support. Ukraine still does not have a good judicial system and anti-corruption agencies so it will be important to have a platform with all stakeholders involved to keep proper control of expenses. We started banking reform but what Ukraine needs most is judicial and court reform. Without it, reforms will be reversible. The country needs a lot of help and money, but it also needs conditions attached with strong monitoring. Without it, corruption will prevail again.

GF: How will Ukraine’s reconstruction be financed?

Gontareva: We can’t fund it through deficit spending or through European and American taxpayers. Russia should pay for it.  It’s difficult to access the frozen assets of [individual] Russian oligarchs, but we can easily access frozen assets of the Russian central bank with legislation. It’s not right that US and European taxpayers pay for the reconstruction of Ukraine.

GF: What will be the role of the central bank in rebuilding the private sector and revitalizing Ukraine post-war?

Gontareva: It’s a very difficult question and we will need help and guidance to involve all the people. When you lose your businesses and you lose your homes, it’s difficult to start from scratch again. We have a chance to create a new modern country and to build good infrastructure. We will need human capital to rebuild, and I think most Ukrainians who have left the country will return if we show them good opportunities for business and development. We need to stop Putin and his regime completely. All civilized humanity is fighting against one dictator and though Ukraine is paying a high price, we will win together.

Global Finance: How effective have international sanctions on Russia and President Vladimir Putin been so far?

Hagar Chemali: The coordination on these sanctions is the most impressive I’ve ever seen. It’s difficult to get the 27 members of the EU to agree on anything, but the coordination on Russia sanctions has been tight and the policies are nearly identical. There has been a proactive effort to have a united front, and there will need to be more coordination on enforcement for years going forward. 

GF: Are sanctions imposed today different than the past?

Chemali: Sanctions used to be countrywide blocking systems that usually empowered elites while people suffered. The only example where it worked well was South Africa. The mindset changed after 9/11. People decided that the best way to get at al-Qaeda was to go after its money. The office that I joined in 2006 created the authority to go after terrorist assets and now that office has sanction regimes for almost every national security issue. Today, sanctions are more targeted financial measures against individuals and entities.

GF: How painful will sanctions be to Russia? Will they change Putin’s mind about the invasion?

Chemali: Nobody expects Putin to change his behavior solely because of sanctions. They are meant to be part of a broader strategy that is multilateral in nature. However, sanctions can have a genuine effect when a country is as integrated into international trade as Russia. I don’t think Putin expected the sanctions to be this bad or he wouldn’t have left Russia’s foreign reserves in the US and Europe. They really tighten the financial noose around his neck. Sanctions alone won’t change his mind, but they help undermine his war machine.

GF: How have businesses with significant investments and trade relations with Russia reacted to the sanction regimes?

Chemali: A lot of businesses took the initiative to stop doing business with and in Russia. That’s the power of sanctions. When the US imposes sanctions, it essentially isolates the target from the US financial system, and that unleashes global forces. International players don’t want to do business with a target of US sanctions because of reputational risks. They also don’t want to get in the crosshairs of US authorities. So, companies like BP and Shell are deciding to divest from Russia and cease purchasing Russian oil on their own.

GF: What are the chances that secondary sanctions will be imposed on businesses and countries—notably China—that continue to trade with and invest in Russia?

Chemali: There are no secondary sanctions on entities doing business with Russia. That would require congressional approval. Only Iran and Hezbollah have secondary sanction regimes. I don’t think the US would be afraid to sanction China if it facilitated Russia’s aggression. China won’t sanction Russia anytime soon, but it also doesn’t want to violate existing sanctions. The Chinese recently refused to send airplane parts to Russia because they often include American parts in the production line. President Xi [Jinping] and China know their power comes from their economic prowess. They will be shrewd about what they do to support Russia.

GF: If sanctions don’t end the war, what should the global community’s next steps be?

Chemali: We should offer Putin something. We already appeased him, and we need to end this war. I believe his original three demands were that NATO not expand east, Ukraine never become a NATO member and military assets be moved out of Eastern Europe. We said that all those demands were nonstarters. I don’t like any of the demands either, but it’s better to have a debate about NATO [than have the war continue]. NATO expansion wasn’t the only reason Putin invaded Ukraine, but since it was part of his original demands, why can’t we have that conversation? It’s the elephant in the room.

The Russian invasion of Ukraine has united much of the world in a common purpose to make the war as painful as possible economically for Russia. Sanctions are the weapon of choice.

The European Union, whose 27 members stand to suffer most from economic penalties against Russia, just passed its fourth package of sanctions in mid-March targeting 15 additional individuals—including oligarch Roman Abramovich—and nine entities, Rosneft and Gazprom Neft among them. In addition, the European Commission, France, Germany, Italy, the US, the UK and Canada also recently announced the Russian Elites, Proxies and Oligarchs (REPO) task force to coordinate international sanction policies, the seizure of assets and moves to counter efforts by oligarchs to evade enforcement.

Sanction regimes have rarely been so broad and widely supported across so much of the world. “The coordination we’re seeing on these actions is among the most impressive I’ve ever seen,” said Hagar Chemali who worked in the US Treasury Department during the Bush and Obama administrations on sanctions and counter-terrorism policy for 12 years and now hosts a foreign policy show on YouTube, Oh My World. “It’s difficult to get consensus from all 27 member states of the EU on anything, but with the Russia situation, there has been a proactive effort to have a united front.”

The sanctions employed are far more extensive than those enacted after Russia’s seizure of Crimea in 2014, said Chemali, a spokesperson at the Treasury Department when they were drafted. She said the policy then was cautious about limiting economic fallout on Europe and other nations, particularly in the oil and gas sector.

Not this time. The latest rounds of sanctions target several more Russian businesspeople and politicians along with businesses and state-owned enterprises. The sanction policies and general global outrage have also motivated global companies like oil giants BP and Shell to close operations and divest assets in Russia, putting further pressure on the Russian economy. “The sanctions now tighten the noose around Putin’s neck from every possible angle,” she said.

The economic impact of sanctions against Russia—the world’s eleventh-largest economy—will be significant and global. Commodity prices from wheat to metals to oil have all jumped since the invasion and businesses with substantial trade with the country will suffer. Moreover, if sanctions policy proliferates to include actions against countries that support Russia—most notably China—the economic pain could be far more significant. “We have to be careful, particularly with China,” said Chemali. “When a country like Russia is so integrated into international trade, sanctions can have a real effect. The challenge is that there is no way to do it without some blowback. We haven’t seen the full economic effect of this yet.”

Will the economic pain caused by sanction convince Russian President Vladimir Putin to abandon his war in Ukraine? Probably not.

“Sanctions are not a silver bullet. Nobody expects Putin to change his behavior solely because of them,” Chemali said.

They must be part of a broader strategy employing a mix of tools to help undermine Putin’s war machine, she added. “It always seems like sanctions don’t work, but they don’t work until they do.”

Hopefully for Ukrainians, that is sooner rather than later.