Beware of contagion effects: European banks are preparing for new sanctions against Russia

European banks are preparing for new sanctions against Russia and are warning of the spread of the crisis.

Europe's institutions, especially banks in Austria, Italy and France, are most heavily involved in Russia among banks worldwide.

The head of the British bank HSBC, Noel Quinn, expressed concern on Tuesday that an intensification of the conflict could sweep global financial markets down.

"It is clear that there is a risk of contagion or a second-round effect, but that will depend on the seriousness of the conflict and the seriousness of the retaliatory measures if there is a conflict," he told Reuters.

As the US bank JP Morgan recently explained, European banks in particular with subsidiaries in Russia would feel the effects of sanctions.

JP Morgan named a number of institutions with significant exposure to Russia, including major Italian bank UniCredit, Austria's Raiffeisen Bank International (RBI), France's Societe Generale and Dutch ING.

RBI said that in the event of an escalation, contingency plans that the bank had been preparing over the past few weeks would come into effect.

The Vienna-based bank is active in both Ukraine and Russia.

The Dutch bank ING, which also has a presence in Russia, said: "A further escalating conflict could have significant negative consequences."

Among Europe's banks, money houses in Italy and France stand out in particular, each with outstanding claims in Russia of around 25 billion dollars in the third quarter of 2021, according to data from the Bank for International Settlements (BIS).

The claims of Austrian institutes in Russia were then at 17.5 billion dollars.

German banks demand precise specifications

In the event of new sanctions against Russia, the German banking industry is demanding clear and unambiguous guidelines.

"It is crucial for the banks that sanctions are formulated with sufficient precision and clarity, which means that they do not leave any questions of interpretation unanswered," said a spokeswoman for the BdB banking association.

Until there is clarity about the sanctions, the institutes will remain in the dark.

"We are monitoring the situation," said the European Banking Federation (EBF) in Brussels.

The European Union (EU) intends to present an initial package of measures this Tuesday after the meeting of the foreign ministers of the EU member states.

This was announced by EU Commission President Ursula von der Leyen and EU Council President Charles Michel.

The punitive measures would be directed against those who were involved in the decision to recognize the independence of the rebel regions in eastern Ukraine.

Banks that finance Russian companies in these regions are also affected.