Banks in Italy, France, and Austria are most exposed
European banks are concerned that the payment system which connects them to Russia could become a casualty of the Ukraine crisis, Reuters reported on Wednesday, citing its sources. The banks describe the potential disconnection of Russia from SWIFT as an “atomic bomb” for the industry because it would prevent the repayment of debts, it said.
According to research by JPMorgan, European banks with subsidiaries in Russia are most at risk from economic restrictions. The study said a handful of lenders, including UniCredit, RBI, France’s Societe Generale, and ING of the Netherlands, have notable exposure to the country.
Data from the Bank for International Settlements (BIS) shows Italian and French banks each had outstanding claims of some $25 billion on Russia in the third quarter of 2021. Austrian banks had $17.5 billion, while US banks were owed some $14.7 billion.
Foreign bank exposure to Russia has more than halved since the US and the EU introduced anti-Russia sanctions in 2014, BIS data shows. Back then, the SWIFT international payment system had refused to consider delisting Russia from its services in response to calls it had received.
However, the renewed threat to cut Russia from the payment network, which handles global financial transfers and is used by more than 11,000 financial institutions in over 200 countries, is a major concern for international banks.
The short-term consequences of such a ban are opaque, and might backfire, according to Jan Pieter Krahnen, a finance expert at Frankfurt’s Goethe University and adviser to the German Finance Ministry. He told Reuters that in the long term it could lead to the establishing of a parallel mechanism that would be “a loss for the global system, and also facilitate conflicts further down the road as opportunity costs vanish.”
Heinrich Steinhauer, who represents the German lender Helaba in Moscow, explained that such a move would be tantamount to a giant debt forgiveness program by prohibiting payments. He described it as a “sort of atomic bomb,” saying “For many this would be a catastrophe. For many in the European Union and Russia, and less so for the US because economic ties are fewer.”
Experts add that financial institutions involved in swaps, futures, forwards, and other derivatives that trade with Russian counterparties could also become subject to sanctions rules. Jonathan Moss, partner at the law firm DWF, has noted that a prohibition of trading of Russian bonds in the secondary market would mean that holders of Russian bonds might be forced to sell.
European banks oppose including Russian bonds in a sanctions package, another source said.
