Sat. May 28th, 2022

The European Central Bank has warned borrowers with significant Russian exposure to prepare for the imposition of international sanctions on Moscow if it invades Ukraine.

The warning from the ECB, which oversees 115 of the eurozone’s largest banks, comes because the US has warned that Russia will face “massive consequences” as troops in Ukraine.

Sanctions will increase significant risks for international banks with large Russian exposure, including US Citi, France’s Société Générale, Austria’s Raiffeisen and Italy’s UniCredit.

ECB officials have asked for details on how the banks will handle different scenarios, such as a move to stop Russian banks from gaining access to the Swift international payment system, according to several people briefed on the talks.

The requests emphasize how the ECB wants to ensure that European banks can comply with any sanctions regime and quickly cut out customers with whom they are banned.

The central bank investigated the risks of various scenarios and pressured the banks to share details of their own assessments and contingency plans, according to people briefed on the discussions.

It also requested information on Russian and Ukrainian exposures from Deutsche Bank and ING, the largest lenders in Germany and the Netherlands respectively. Citi, Deutsche Bank, SocGen, Raiffeisen and ING declined to comment, as did the ECB. UniCredit could not be reached for comment.

International banks, including their Russian subsidiaries, have about $ 121 billion in assets owed to them by Russian-based entities, and there is $ 128 billion in lending and deposit financing from Russian entities to foreign banks, according to the Bank for International Settlements.

SocGen has the largest financial exposure to Russia of any European bank, with € 2.6 billion, according to research by JPMorgan. Austria’s Raiffeisen has € 1.9 billion in exposure, while UniCredit has € 1.4 billion.

Andrea Orcel, CEO of UniCredit, was one of the top executives of large Italian companies that joined a video meeting Wednesday with Russian President Vladimir Putin to discuss economic ties.

A senior executive at one of the banks said the biggest risk of sanctions was for its Russian investment banking operations, which deal with large multinational companies and oligarchs, rather than for its commercial banking unit, which deals mostly with medium-sized companies.

The executive said the biggest “systemic risk” would be if Russia were cut off from the Swift payment network, which “could have an impact on the entire banking system in Russia”. However, the CEO said the Russian central bank plans to activate a domestic interbank payment system to replace Swift if necessary.

An additional risk for European banks is that conflict in Ukraine could affect the value of the ruble, which could reduce the value of shares held in their Russian subsidiaries.

Another European bank manager said there were concerns about the risk of going to jail in Russia if Moscow takes revenge on banks trying to impose international sanctions. “We must be able to implement sanctions very quickly. . . “Sometimes it takes time, you may have relationships to settle,” said the CEO.

Michael Lyons, a partner at law firm Clifford Chance, said sanctions could affect a broad group of banks operating in Russia. “Customers of retail banks are not only ordinary individuals, but also corporate and private [business] entities. Some may have significant private wealth management departments. ”

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