ECB looks at geopolitical risks for banks after Russia 'lesson' By Reuters

By Huw Jones

LONDON (Reuters) – The European Central Bank's top banking watchdog said on Wednesday it was working on a new framework to assess how geopolitical risks impact banks, drawing lessons from sanctions on Russia that hit the operations of several euro zone lenders.

Italian bank UniCredit said on July 1 it had appealed to the European Court of Justice against ECB demands to cut ties with Russia, which is subject to a raft of sanctions from the EU, the United States and elsewhere following its invasion of Ukraine.

Claudia Buch, who heads banking supervision at the ECB, said she would not comment on individual banks or stocks, but said Russia was a good example of how the risk landscape for banks has changed.

Sanctions have potential implications for a bank's reputation, leaving it exposed to fines that could affect capital, liquidity and other aspects, he said.

The ECB called on banks from the outset to exit Russia and reduce their exposure there, which has happened in many cases, he said.

“This teaches us a broader lesson because I think these geopolitical risks are not going away,” Buch said at an online event hosted by the Petersen Institute for International Economics.

“That's why we are now working very closely to develop a framework that we can use as supervisors to address geopolitical risks,” Buch said.

The framework would be used to understand how such risks affect a bank's credit, market, liquidity and operational risks, he said.

Separately on Wednesday, UniCredit, which owns Russia's 15th-largest lender and has the second-biggest presence there among European banks after Austria's Raiffeisen, said it aims to more than halve lending at its Russian unit by the end of next year.