Andrea Enria told the European Parliament that, even in an extreme scenario, losses for the European Union banking sector "would remain manageable," although he warned that some financial institutions with a presence in Russia could decide to pull out.
"As a consequence of the sanctions, and the retaliatory measures implemented by the Russian Federation, significant institutions that are established in Russia may decide to exit the Russian market," Enria told EU lawmakers in a letter written on Wednesday and published Thursday. "The impact of such a choice would depend on the exit scenario."
An extreme case might see European organizations with operations in Russia leaving with full loss of their equity investment and a full write-down of cross-border exposures. But even if that happened, ECB analysis shows, the average impact would be between 0.70% and 0.95% of Common Equity Tier 1 capital, a measure of a bank's core capital used to determine a bank's strength.
None of the nine major banks with an establishment in Russia would suffer a Tier 1 capital loss of more than 2%, and all would remain within regulatory capital requirements.
Enria also warned of threats facing financial institutions with strong Russian ties. He pointed to the collapse of Sberbank Europe AG in February, the Zurich-based subsidiary of Russia's biggest bank.
Russia's invasion of Ukraine posed limited direct effects on euro area financial stability, the ECB chair added. Evidence available to the board indicates that "exposures to entities affected by EU sanctions represents a minor share of direct exposures to Russia."
Enria warned that assessments must consider Russian counter-measures and that the quickly-evolving conflict made it challenging to assess the impact on the European banking system.
"Assessing the sanctions' impact is rendered more complex by possible second round effects," he said, pointing to knock-on impacts in energy and commodity markets or "broader repricing on financial markets, asset quality deterioration across loan portfolios and potential cyberattacks."
Enria penned his letter as the European Parliament debated proposals for a fresh wave of sanctions.
European Commission President Ursula von der Leyen has threatened Moscow with a ban on oil exports after the bloc announced plans Tuesday to stop Russian coal imports and cut transactions with four key Russian banks.
-- Additional reporting by Irene Madongo. Editing by Ed Harris.
For a reprint of this article, please contact reprints@law360.com.
