The chief banking supervisor for the European Central Bank announced on Wednesday that she was developing a new framework to evaluate the impact of geopolitical risks on banks, taking inspiration from the sanctions on Russia that have affected the operations of many lenders in the euro zone.
After Russia invaded Ukraine, the EU, the US, and other countries imposed a plethora of sanctions on it.
As a result, the Italian bank UniCredit , announced on July 1 that it had filed an appeal with the European Court of Justice against the requests of the ECB to sever connections with Russia.
The European Central Bank’s (ECB) head of banking supervision, Claudia Buch, stated that while she would not remark on specific banks or activities, she would point to Russia as an excellent illustration of how the risk environment for banks has evolved.
Laptops 1000According to her, sanctions can harm a bank’s brand by subjecting it to fines that could affect its capital, liquidity, and other factors.
The European Central Bank (ECB) has consistently urged banks to decrease their exposure to Russia and withdraw from the country.
“I believe these geopolitical risks won’t go away, so this tells us a lesson more broadly,” Buch stated at a Petersen Institute for International Economics online event.
“This is why we’re now working very closely to develop a framework that we can use as supervisors to deal with geopolitical risks,” Buch stated.
The framework will be utilized to comprehend how these risks affect a bank’s credit, market, liquidity, and operational concerns.
Separately on Wednesday, UniCredit, which owns the fifteenth-largest lender in Russia and is the second-largest European bank there, after Raiffeisen of Austria, stated that by the end of the next year, it intends to more than halve loans at its Russian subsidiary.
