# Europe’s banks brace for Russia fallout while U.S. banks see limited pain
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-02-24
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: European Banks Brace for Fallout as New Global Sanctions on
Meta Description: European banks are preparing for potential fallout from new global sanctions amid escalating tensions in Ukraine, with U.S. banks expecting minimal disruption
URL: https://financedigest.com/europes-banks-brace-for-russia-fallout-while-u-s-banks-see-limited-painhtml

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By Lawrence White, Alexandra Schwarz-Goerlich and Pete Schroeder

WASHINGTON/VIENNA/LONDON (Reuters) -European banks on Tuesday were bracing for the fallout from fresh global sanctions as the Ukraine crisis escalated, although U.S. [bank executives said they expected the industry](https://www.financedigest.com/the-survival-of-the-banking-industry.html "THE SURVIVAL OF THE BANKING INDUSTRY") to be insulated from major disruption after pulling back from Russia in recent years.

Europe’s banks – particularly those in Austria, Italy and France – are the world’s most exposed to Russia, and for weeks have been on high alert should governments [impose new sanctions](https://www.financedigest.com/new-u-s-sanctions-imposed-for-russian-bank-oligarchs-crypto-miner-bitriver.html "New U.S. sanctions imposed for Russian bank, oligarchs, crypto miner BitRiver") against the country.

HSBC warned of [market contagion and Austria’s Raiffeisen Bank](https://www.financedigest.com/oil-markets-steady-as-investors-weigh-banking-crisis-russia.html "Oil markets steady as investors weigh banking crisis, Russia") International (RBI) said it was preparing “crisis plans.

Britain was the first on Tuesday to move in retaliation for [Russia recognising two breakaway regions of Ukraine](https://www.financedigest.com/russia-promises-to-scale-down-operations-in-northern-ukraine.html "Russia promises to scale down operations in northern Ukraine") and sending troops. [Britain hit five banks](https://www.financedigest.com/britain-seeks-to-boost-banking-services-from-fintechs.html "Britain seeks to boost banking services from fintechs") and three individuals, a relatively mild package that Prime Minister Boris Johnson said allowed him to “reserve further powerful sanctions” for whatever “Putin may do next.

The European Union also agreed sanctions that will blacklist more politicians, lawmakers and officials, ban EU [investors from trading in Russian state bonds](https://www.financedigest.com/investors-seek-higher-returns-as-catastrophe-bond-issuance-slows-during-q2-according-to-aon-study.html "INVESTORS SEEK HIGHER RETURNS AS CATASTROPHE BOND ISSUANCE SLOWS DURING Q2, ACCORDING TO AON STUDY"), and target imports and exports with separatist entities.

“This package of sanctions… will [hurt Russia, and it will hurt a lot,” the EU’s foreign policy](https://www.financedigest.com/ancs-failed-foreign-policy-hurting-south-africa.html "ANC’s failed foreign policy hurting South Africa") chief Josep Borrell told a news conference.

German Chancellor Olaf Scholz said he was halting the certification of the [Nord Stream](https://www.financedigest.com/denmark-invites-nord-stream-operator-to-help-salvage-unidentified-object.html "Denmark invites Nord Stream operator to help salvage unidentified object") 2 gas pipeline, an important future energy source for Europe’s largest economy.

Then on Tuesday afternoon U.S. President Joe Biden announced sanctions targeting two Russian banks, the country’s [sovereign debt](https://www.financedigest.com/analysis-no-china-no-deal-bid-to-break-sovereign-debt-logjams-gets-weary-thumbs-up.html "Analysis-No China, no deal: Bid to break sovereign debt logjams gets weary thumbs up"), and Russian elites and family members, and warned that Russia would pay an even steeper price if it continued its aggression.

Since Russia’s annexation of Crimea in 2014, the United States and European Union have blacklisted specific individuals, sought to limit Russia’s state-owned [financial institutions’ access to Western capital markets](https://www.financedigest.com/the-political-wildcard-what-is-trumps-us-presidential-nomination-doing-to-financial-markets.html "The political wildcard: What is Trump’s US presidential nomination doing to financial markets?"), and imposed bans on weapons trade and other limits on the trade of technology, such as that for the oil sector.

That [caused banks](https://www.financedigest.com/explainer-what-are-credit-default-swaps-and-why-are-they-causing-trouble-for-europes-banks.html "Explainer-What are credit default swaps and why are they causing trouble for Europe’s banks?"), particularly in the United States, to reduce their exposure to Russia, making some bankers less concerned about the threat of sanctions on their business and more focused on the market impact of geopolitical tensions.

The boss of HSBC, one of Europe’s largest banks, said on Tuesday [“wider contagion” for global markets](https://www.financedigest.com/hsbc-appoints-new-markets-head-amid-wider-investment-bank-reshuffle.html "HSBC appoints new markets head amid wider investment bank reshuffle") was a concern, even if the bank’s direct exposure was limited.

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

U.S. banks, meanwhile, are not expecting global sanctions to have a major impact on American [bank businesses](https://www.financedigest.com/credit-agricole-launches-china-ma-and-investment-banking-business.html "Credit Agricole launches China M&A and investment banking business") or spark contagion risk, given lenders have little exposure to the Russian economy, said four executives familiar with industry thinking.

According to the [Bank for International Settlements](https://www.financedigest.com/td-other-banks-reach-1-35-billion-settlements-to-end-stanford-litigation.html "TD, other banks reach .35 billion settlements to end Stanford litigation"), U.S. lenders had outstanding claims of just $14.7 billion on Russia in the [third quarter](https://www.financedigest.com/greek-residential-property-price-recovery-picks-up-in-third-quarter.html "Greek residential property price recovery picks up in third quarter") of 2021.

U.S. [banks and financial industry lobby groups have held meetings](https://www.financedigest.com/banking-stability-worries-go-behind-closed-doors-at-imf-world-bank-meetings.html "Banking stability worries go behind closed doors at IMF-World Bank 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 the potential targets of the sanctions so they could move](https://www.financedigest.com/stock-pickers-reckon-its-time-to-move-on-from-central-banks.html "Stock pickers reckon it’s time to move on from central banks") quickly.

Another said the administration had reached out to [executives in the industry before Christmas and had kept banks](https://www.financedigest.com/bank-of-england-fines-former-tsb-executive-over-2018-it-failure.html "Bank of England fines former TSB executive over 2018 IT failure") apprised of its thinking.

This person added that one area of [potential concern](https://www.financedigest.com/connectivity-concerns-must-be-addressed-to-unlock-iots-potential-for-energy-sector.html "Connectivity concerns must be addressed to unlock IoT’s potential for energy sector") was the disruption that might be created if the U.S. decides to target Russia’s access to the SWIFT international payment network, although that is seen as unlikely in the [near future](https://www.financedigest.com/automotive-digital-key-market-unit-sales-to-witness-significant-growth-in-the-near-future.html "Automotive Digital Key Market Unit Sales to Witness Significant Growth in the Near Future").

That’s because cutting Russia off from the international payments network could seriously hurt its economy and everyday citizens, and would create enormous [complexity and compliance risks for the global](https://www.financedigest.com/2017-global-payroll-complexity-index-reveals.html "2017 Global Payroll Complexity Index Reveals ") banking industry.

RBI, which has significant operations in Russia and Ukraine, said business was now normal, but “in the event of an escalation, the [crisis plans that the bank](https://www.financedigest.com/how-the-2023-banking-crisis-unfolded.html "How the 2023 banking crisis unfolded") has been preparing over the past few weeks will come into effect.

[Shares in the Austrian bank](https://www.financedigest.com/bank-shares-rise-after-credit-suisse-rescue-eases-crisis.html "Bank shares rise after Credit Suisse rescue eases crisis") fell 7.48% on Tuesday.

Dutch lender ING, which has a large [presence in Russia](https://www.financedigest.com/ecb-unicredit-clash-over-capital-plans-russia-presence-ft-says.html "ECB, UniCredit clash over capital plans, Russia presence, FT says"), said: “A further escalating conflict could have major negative consequences.

One Danish pension [fund said it would immediately halt new Russian](https://www.financedigest.com/permitted-share-of-chinas-yuan-in-russian-wealth-fund-doubled-to-60-finance-minister.html "Permitted share of China’s yuan in Russian wealth fund doubled to 60% -Finance Minister") investments in the wake of Putin’s move into Ukraine.

With several jurisdictions rolling out new sanctions, bankers said they hoped [governments would coordinate as they drafted](https://www.financedigest.com/big-pharma-may-have-to-reveal-government-deals-in-whos-draft-pandemic-rules.html "Big Pharma may have to reveal government deals in WHO’s draft pandemic rules") the fine print, in order to reduce complexity for the industry.

(Reporting by Laurence White in London, Alexandra Schwarz-Goerlich in Vienna, and Pete Schroeder in Washington; additional reporting by Iain Withers and Tommy Reggiori Wilkes in London, Toby Sterling in Amsterdam, Michelle Price and Hannah Lang in Washington, and Matt Scuffham in New York; Writing by Tom Sims; Editing by Jonathan Oatis and Rosalba O’Brien)


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