European banks brace for fallout from Russia sanctions – EURACTIV.com

On Tuesday (February 22nd), European banks braced for the fallout from new global sanctions as the Ukraine crisis escalated, although US bank executives said they expected the sector to be safe from major disruptions after pulling out of Russia in recent years.

European banks – particularly those in Austria, Italy and France – have the world’s most exposure to Russia and have been on high alert for weeks if governments impose new sanctions on the country.

HSBC warned of market contagion and Austria’s Raiffeisen Bank International (RBI) said it was preparing “crisis plans”.

Britain was the first on Tuesday to act in retaliation for Russia’s recognition of two breakaway regions of Ukraine and the sending of troops. Britain hit five banks and three people, a relatively soft package that Prime Minister Boris Johnson said allowed him to ‘reserve powerful new sanctions’ for whatever ‘Putin might do next’.

The European Union has also agreed to sanctions that will blacklist more politicians, lawmakers and civil servants, bar EU investors from trading Russian government bonds and target imports and exports with separatist entities. .

“This sanctions package…is going to hurt Russia, and it’s going to hurt a lot,” EU foreign policy chief Josep Borrell told a news conference.

German Chancellor Olaf Scholz has said he is suspending certification of the Nord Stream 2 gas pipeline, an important future energy source for Europe’s biggest economy.

Then, on Tuesday afternoon, US President Joe Biden announced sanctions targeting two Russian banks, the country’s sovereign debt, Russian elites and family members, and warned that Russia would pay an even higher price if she continued her aggression.

US sanctions Russia for ‘starting’ Ukraine invasion

US President Joe Biden has announced tough new sanctions on Russia for ‘starting’ an invasion of Ukraine, but said there was still time to avoid war, even though Vladimir Putin has announced his intention to to send troops beyond Russian borders.

Since Russia’s annexation of Crimea in 2014, the United States and the European Union have blacklisted specific individuals, sought to limit Russian public financial institutions’ access to Western capital markets, and imposed bans on the trade in arms and other limits on the trade in technology, such as that of the oil sector.

This prompted banks, particularly in the United States, to reduce their exposure to Russia, making some bankers less concerned about the threat of sanctions on their businesses and more focused on the impact of geopolitical tensions on the market.

The boss of HSBC, one of Europe’s biggest banks, said on Tuesday that “wider contagion” for global markets was concerning, even if the bank’s direct exposure was limited.

“It is clear that there is a likelihood of contagion or second order effect, but it will depend on the severity of the conflict and the severity of the retaliation if there is conflict,” Noel Quinn told Reuters in a statement. interview.

U.S. banks, meanwhile, do not expect global sanctions to have a major impact on U.S. banking or trigger contagion risk, given that lenders have little exposure to the Russian economy, they said. said four executives familiar with industry thinking.

According to the Bank for International Settlements, US lenders had only $14.7 billion in outstanding claims on Russia in the third quarter of 2021.

U.S. banks and financial industry lobby groups have held meetings with the Biden administration to discuss sanctions in recent days, three of the sources said. One said banks had spent the past 24 hours identifying who might be potential sanctions targets so they could act quickly.

Another said the administration contacted industry leaders before Christmas and kept banks informed of its thinking.

The person added that one potential area of ​​concern was the disruption that could be created if the US decides to target Russia’s access to the SWIFT international payment network, although this is considered unlikely in the future. close.

Indeed, cutting Russia off from the international payments network could seriously harm its economy and ordinary citizens, and create enormous complexity and compliance risks for the global banking industry.

RBI, which has major operations in Russia and Ukraine, said business was now normal, but “in the event of an escalation, the crisis plans the bank has prepared over the past few weeks will come into effect.”

Shares of the Austrian bank fell 7.48% on Tuesday.

Dutch lender ING, which has a strong presence in Russia, said: “A further escalation of the conflict could have major negative consequences.

A Danish pension fund said it would immediately halt new Russian investment following Putin’s arrival in Ukraine.

As several jurisdictions rolled out new penalties, bankers said they hoped governments would coordinate when writing the fine print, to reduce complexity for the industry.