Effects of the Ukraine war: Europe’s banks with taker qualities

Status: 04/25/2022 12:07 p.m

The European banking system can absorb the direct consequences of the Ukraine war without major problems. However, there is one important limitation.

The European banks have so far apparently held up well against the consequences of the Russian war of aggression in Ukraine. “The economic consequences of the sanctions for the European economy, which have been predictable so far, would be easy for the European financial system to cope with,” Jacob Gyntelberg, director of the European Banking Authority (EBA) responsible for economic and risk analysis, told the financial newspaper “Handelsblatt”.

Crux of the energy market

Gyntelberg expects larger losses at banks in the event that Russia stops its energy supplies or the European Union imposes an embargo on Russian oil and gas and the European economy slides into recession as a result. “But in my opinion, the capital buffers of most banks are large enough for such a scenario, and that also applies to the German banking system,” said the EBA expert.

Overall, in his estimation, the indirect consequences of the war, so-called second-round effects, will hit European banks harder. Gyntelberg also counts “counter-sanctions from Russia” as a possible second-round effect, such as a delivery stop for oil and gas or delivery restrictions.

German and Austrian banks particularly affected

According to his assessment, possible credit risks could then primarily affect Eastern European, German, but also Austrian banks. “For French banks, that plays a lesser role, for Spanish and Italian banks it’s hardly an issue,” said Gyntelberg.

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