Western allies' sanctions against Russia have started to blow back in the form of large potential losses for their own banks, companies and investors, often in unexpected ways. In the past, such fires have been precursors to financial crises. Nevertheless, some market participants say that there is no panic in the market.
Investment company employees, for example, admit that they "haven't had any of those 'holy shit' phone calls", referring to the avalanche of 'sell everything' calls that come down on brokers at moments of market collapse. On the contrary, many are wondering whether it makes sense to invest in assets while they are down on the market.
"There is so much more capital in the system. Russia is not that big. Risk management is better," Schamis said, comparing the situation now to the financial crisis in 2008 when he had a front-row seat as someone with capital to invest.
Indeed, banks have fat buffers this time around.
The Federal Reserve said on Friday, financial institutions placed more than $1.4 trillion overnight. This indicates that investors are rushing to pour unused balances into circulation in the run-up to the rate hike. It shows there is enough capital in the financial system to absorb losses from the Ukrainian invasion.
Nevertheless, weaknesses in the global economy, caused by the disruption of production and settlement chains with Russia, are growing.
From Societe Generale SA and BP Plc in Europe to Citigroup Inc in the United States, Western companies have tallied up billions of dollars in exposure to Russia, money that they could lose.
One major US bank has estimated that the cumulative cost of failing to cooperate with Russian companies and the Central Bank could be around $400 billion.
The shock is being felt in unexpected places.
In Germany, for example, the debt authority has had to increase the size of the bond to ease conditions on overnight lending markets in the eurozone, the most important source of credit for banks and other financial institutions.
Bunds are used as collateral in the market, but there has been a shortage. The Germans have said they suspect some of the bonds are held by sanctioned entities that cannot trade.
In Russia, internet companies Ozon Holdings Plc and Yandex NV could face nearly $2 billion in unexpected bills after trading in their U.S. listed shares was suspended after the sanctions. That could trigger a clause in their debt agreements that makes some of their bonds redeemable. Yandex said it doesn't have the money to pay investors.
The disparate nature and the geographical spread of these fires are some of the hallmarks of financial contagion, the idea that losses can quickly barrel through a deeply interconnected system in ways that no one can fully predict. At some point, as losses spread, market participants panic and withdraw, freezing credit and precipitating a broader financial crisis.
Nevertheless, experience of market behavior during a pandemic has shown that economies are quite capable of handling multiple systemic shocks without stock market panic.
Former Commodity Futures Trading Commission Chairman Timothy Massad was deeply involved as a Treasury official in the US government's handling of the 2008 financial crisis. Following many analysts, he believes that the system is well able to absorb the shock, and he hasn't noticed anything that raises serious concerns about financial stability.
Even so, the situation is rapidly evolving. "I don't think this is a stable situation," said Massad. "What concerns me the most is how long this goes on and whether something happens in the war that triggers a much bigger shock or triggers panic."
The attack Friday on Ukraine's nuclear plant was troubling, he noted.
Some signs of stress have started to appear in markets, with investors shedding riskier assets. Banks are getting nervous about lending to each other and hoarding dollars, which are getting more expensive for foreigners to procure. However, these indicators are well below the peaks seen during full-blown crises and the market's plumbing is holding up.
Moscow abruptly ordered brokers to reject sell orders by foreigners for Russian securities on February 28. That meant any orders to sell rouble-denominated Russian government bonds that had not settled by then were stuck. By one estimate, hundreds of millions of dollars' worth of proceeds might be frozen, but even then market participants say the hit to portfolios is not large enough.
For now, the word on the Street is more of confusion than panic. People are working through what the raft of sanctions against Russian banks, assets and individuals means for their dealings and holdings, market participants say.
"The danger comes from the fact that you have long intermediation chains that make it difficult to know what exactly the exposure and the risks are," Massad says.
Of course, the loss of one of the world's major counterparties can shake up the business and financial world. However, using the experience of the Russian default in 1998, it cannot be said that the world economy suffered a shock. It was only a shock to the Russians. For Americans, for example, the 1990s are remembered as a period of maximum prosperity. A far greater test for the world was the pandemic restrictions. And, among other things, it is a reason for Russians to think about their role in the global financial pie.
