5 ways the Ukraine war is impact the banking industry

5 threats banks face as a result of the Russia-Ukraine war

May 5, 2022 11:46 AM

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With the Russian invasion of Ukraine now in its third month, there are few signs that the conflict will be resolved in the near future.

From financial losses due to sanctions and payments firms suspending business in Russia to the use of crypto to circumvent restrictions and the threat of cyberattacks, here are five ways the war in Europe is causing concerns for U.S. banks.

Commercial banking

BNY Mellon reported fee revenue of $3.1 billion in the first quarter of 2022, suffering a 3% drop over last year as a result of $88 million in losses due to sanctions against Russia.

In March, the company joined many other Wall Street firms in ceasing business with Russia in direct response to its unprovoked invasion of Ukraine. Following this withdrawal, the bank had anticipated first-quarter losses in the region of $100 million. Now it expects further losses of $15 million to $20 million per quarter this year.

“We’re in an increasingly uncertain environment, including the war in Ukraine, volatile markets and persistently higher inflation, which will require more meaningful monetary policy adjustments,” said BNY Mellon CEO Todd Gibbons during the bank’s April earnings call.

Read more:

BNY Mellon takes $88M hit from Russia exit

Payments

Visa, Mastercard, American Express and PayPal are among numerous payments firms, both domestic and international, that reacted to the war by announcing bans and withdrawing business in Russia and Belarus.

The international payment community’s swift measures are designed to put economic and political pressure on the Putin regime. Although this is likely to provoke a strong response from Russia, the concerted action of these organizations is already having the desired effect on the Russian economy and payments market.

Read more:

These payment companies are cutting off Russia

Cryptocurrencies

While sanctions have been imposed on Russia in a bid to disrupt the country’s economy, there are well-founded concerns that the impacted banks and oligarchs will use cryptocurrencies to circumvent these punitive actions in response.

“Criminals, rogue states, and other actors may use digital assets and alternative payment platforms as a new means to hide cross-border transactions for nefarious purposes,” Sens. Elizabeth Warren, D-Mass., Mark Warner, D-Va., Sherrod Brown, D-Ohio, and Jack Reed , D-R.I. wrote in a letter to Treasury Secretary Janet Yellen.

As an anti-establishment alternative, digital assets are commonly used to bypass the traditional financial system, and consequently have the potential to be misused by Russian entities to evade sanctions.

Read more:

Could Russian banks and oligarchs use crypto to evade sanctions?

Economic sanctions

The economic sanctions on Russia following the invasion of Ukraine are beginning to bite on the Russian economy. While the value of the ruble has plummeted, the U.S. economy has so far not been seriously impacted.

But, the possibility of a long, drawn-out conflict presages a sustained period of economic uncertainty for U.S. and global markets, particularly if the international community deems that stronger sanctions are necessary.

Top of mind for U.S. banks are concerns over anti-money-laundering policy, rising energy costs and cybersecurity.

Read more:

Harsher sanctions against Russia could hurt U.S. banks

Cybersecurity

The U.S. banking industry continues to be on alert for cyberthreats from Russia after a wave of attacks struck three of Ukraine’s banks and divisions of the Ukraine government in the early days of the conflict.

U.S. concerns predate the invasion. “While there are currently no specific or credible cyberthreats to the homeland, the U.S. government has been preparing for potential geopolitical contingencies since before Thanksgiving,” Anne Neuberger, deputy national security advisor for cyber and emerging technology, said on Feb. 18.

Although cyberattacks on financial institutions during the conflict have primarily impacted Ukraine, fears remain that Russian state-sponsored attacks on Western banks will be next.

Read more:

Top cyberthreat to U.S. banks may stem from attacks on Ukrainian targets