European banking has room for maneuver in the face of war in Ukraine, according to the SRB

European banks arewell positioned” to deal with the economic impact of the Russian invasion of Ukraine and have “Room for maneuver” to manage the situation arising from the sanctions on Russia, according to the Single Resolution Board (JUR).

“Looking at the first round effects, what we can see at the moment, it is fair to say that European banks appear to be well positioned to weather the storm. Even if all Russian assets are lost, this seems manageable for the banking sector”, said the president of the SRB, Elke Konigin an appearance before the Economic Affairs Committee of the European Parliament.

Asked by MEPs about the impact of the crisis on European entities, König insisted that both the body he presides over and the European Central Bank (ECB) are monitoring the situation and pointed out that, as happened with the COVID-19 pandemic, this “seems very manageable” since the entities “They are in a much better situation than they were and they have much more room for manoeuvre.”

He admitted that “it cannot be excluded that there is a separate case” and that with the effects of second, third or fourth round the situation “it could change”, but insisted that “for now” is “moderately positive”.

König debated with MEPs just two weeks after the agency he chairs ordered interventions in the subsidiaries of the Russian bank Sberbank in Austria, Croatia and Sloveniawhich were declared bankrupt or at risk of bankruptcy after suffering a significant deterioration in their liquidity as a result of the sanctions imposed on Moscow.

After applying a moratorium, the SRB decided to settle the banks of Sberbank in Croatia and Sloveniatransferring all its shares to Hrvatska Potanska Banka and Nova ljubljanska banka (NLB), respectively.

In the case of the European parent company of the largest Russian bank, based in Austria, it was decided to liquidate it in accordance with Austrian insolvency rules since it did not perform critical functions for the economy of this country and would not create a problem for stability.

König defended that this process was carried out “At the speed of light” allowed consumers to protect European financial stability, since their deposits of less than 100,000 euros were protected; and to the taxpayers because it was not necessary to use public money to rescue the entities.

But he insisted that the operation leaves two “lessons to learn”. On the one hand, the need to harmonize national insolvency laws, since this case has once again highlighted the differences between countries, a problem that “could be amplified” if the banking group had been larger.

And on the other hand, the importance of establishing a European deposit guarantee fund that “install confidence in a time of crisis” by adding a second European level of protection for deposits of less than 100,000 euros.

This initiative has been on the table for years, but it has not gone ahead due to the reluctance of several countries to mutualise banking risks.