London (Business Emerge), July 25: The European Central Bank (ECB) is revising its approach to evaluating geopolitical risks impacting banks, taking cues from the sanctions imposed on Russia. Claudia Buch, the ECB’s leading figure in banking supervision, revealed on Wednesday that the new framework aims to enhance how banks manage such risks.
The impetus for this development comes from the experience of Eurozone banks dealing with sanctions on Russia, which have affected their operations. Notably, Italian bank UniCredit recently challenged ECB directives to sever ties with Russia at the European Court of Justice. This move highlights the ongoing struggle for banks navigating sanctions imposed by the EU, the US, and other nations in response to Russia’s invasion of Ukraine.
In a statement, Buch emphasized the lessons learned from the situation in Russia, noting that geopolitical risks are unlikely to diminish. The ECB’s new framework is designed to evaluate how these risks influence various aspects of banking operations, including credit, market, liquidity, and operational risks.
Buch also pointed out that sanctions can have significant repercussions on a bank’s reputation, potentially leading to fines that affect capital and liquidity. The ECB had earlier advised banks to reduce their exposure to Russia, a directive that has been implemented by many institutions.
On a related note, UniCredit, which holds a significant presence in Russia, including ownership of its 15th largest lender, announced that it plans to significantly reduce its Russian loan portfolio by the end of the next year.