U.S. banks are auditing their exposures to Russia as sanctions imposed on the country raise questions about the global implications of essentially locking Russia out of international financing.
But the relative size of Russia, as well as the country’s limited dealings with U.S. firms, should contain the risk from a potential economic collapse, according to RBC Capital Markets Managing Director Gerard Cassidy.
“The exposure is minimal,” said Cassidy, who watches the large cap U.S. banks.
With Russian banks — and the country’s central bank — locked out of the global banking system, some are questioning the ripple effects of the possible collapse of a G20 nation’s economy. The country is already reeling from the sanctions, with the Russian ruble devaluing over 25% against the U.S. dollar.
On Monday, Citigroup said it was exposed to about $10 billion in loans, government debt, and other assets linked to Russia. The company has over $2 trillion in total assets.
“Citi continues to monitor the current Russia–Ukraine geopolitical situation and economic conditions and will mitigate its exposures and risks as appropriate,” the bank said in its annual filing disclosing the exposure.
Annual filings for JPMorgan Chase and Bank of America did not list Russia as a top 20 international market by exposure. Wells Fargo, a more domestically focused business than the other three large banks, did not mention Russia in its annual filing either.
But there are forms of indirect risk to Russia that have folded into the financial stability conversation as of late.
Lehman moment ‘not likely’
Over the weekend, Western nations announced a number of measures against Russia. In addition to partially cutting off the country from a critical global financial network known as SWIFT, the United States said it would be blocking transactions with the Central Bank of Russia in a move to prevent the country from defending its currency.
As the Russian ruble tumbled, the country’s central bank responded by doubling its interest rate (from 9.5% to 20%).
Lines outside of Russian banks are raising concerns about a run on financial giants like Sberbank and VTB, both targeted by U.S. sanctions.
But Kenneth Rogoff, former chief economist for the International Monetary Fund, noted that a faltering Russian economy likely would not spill over into a financial crisis in the United States.
“The fact is, Russia is very important in energy markets but it’s a midget in the global economy and Ukraine is even smaller,” Rogoff told Yahoo Finance Monday. By GDP, Russia is the 11th largest economy in the world, according to the World Bank (as of 2020).
But some have raised concerns about a Lehman Brothers-like global event, where the failure of a large bank triggers a global financial crisis. Sberbank and VTB together have about $750 billion in total assets and have foreign arms across central and eastern Europe.
Zoltan Pozsar at Credit Suisse wrote over the weekend that as Russia and its banks scramble to find U.S. dollars, firms around the world may face substantial settlement risk.
“Banks’ inability to make payments due to their exclusion from SWIFT is the same as Lehman’s inability to make payments due to its clearing bank’s unwillingness to send payments on its behalf. History does not repeat itself, but it rhymes,” Pozsar wrote.
Cassidy said that even in the event of substantial global financial stress, the U.S. banks should be able to weather the storm.
“The global financial conditions are much much stronger today than they were pre-Lehman,” Cassidy told Yahoo Finance Monday. “Here in the United States our American banking system has over two times the amount of capital liquidity following the financial crisis.”
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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