Washington/Vienna/London: Many European banks are likely to be hit hard from the fallout from fresh global sanctions as the Ukraine crisis escalated, although US bank executives said they expected the 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 against 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 move in retaliation for Russia recognising two breakaway regions of Ukraine and sending troops. Britain hit five banks 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, and target imports and exports with separatist entities.
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, and imposed bans on weapons trade and other limits on the trade of technology, such as that for the oil sector.
That caused 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 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.
US banks, meanwhile, are not expecting global sanctions to have a major impact on American bank businesses 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, US lenders had outstanding claims of just $14.7 billion on Russia in the third quarter of 2021.