European banks in Russia face 'an enormous amount of risk', says Yellen

U.S. Treasury Secretary Janet Yellen speaks as she chairs a meeting of the Financial Stability Oversight Council at the Treasury Department on May 10, 2024 in Washington, DC.

Kent Nishimura | Getty Images

U.S. Treasury Secretary Janet Yellen told Reuters that European banks face increasing risks operating in Russia and that the U.S. is strengthening secondary sanctions on banks that make transactions in aid of Russia's war effort to support.

“We are looking at a potentially stricter intensification of our sanctions against banks doing business in Russia,” Yellen told Reuters in an interview. He declined to provide details and did not name any banks they could target.

Yellen said on the sidelines of a meeting of G7 financial leaders in northern Italy that sanctions related to banks' transactions in Russia would only be imposed “if there is a reason for it, but operating in Russia carries enormous risks.” with him. she added.

Asked whether she would like to see Austria's Raiffeisen Bank International and Italy's UniCredit withdraw from Russia, Yellen said: “I believe their regulators have advised them to be extremely careful about what they do there.”

'Out'

Policymaker Fabio Panetta of the European Central Bank had clear instructions for the Italian banks on Saturday reporters tell that lenders should 'leave' Russia because staying in the country entails a 'reputation problem'.

Raiffeisen is the largest European lender doing business in Russia, followed by UniCredit. Another major Italian lender, Intesa Sanpaolo is working on the sale of its Russian activities.

The new US President Joe Biden secondary sanctions authority gives the Treasury Department the power to cut off banks from the U.S. financial system if they are found to be helping to circumvent primary sanctions against Russian and other entities over Moscow's war in Ukraine.

Yellen and other U.S. Treasury officials have said Russia's economy is increasingly a “war economy,” making it harder to distinguish between civilian and military or dual-use transactions.

The existence of the secondary sanctions has already chilled the banks' involvement with Russia, but Yellen has expressed concern that Russia is managing to find ways to acquire goods needed to boost its military production, citing referring to transactions through China, the United Arab Emirates and Turkey.

Warning letter

Earlier this month, the Ministry of Finance said Raiffeisen warned in writing that access to the dollar-denominated financial system could be cut off over Russian relations, citing a proposed 1.5 billion euro deal with a sanctioned Russian tycoon, a person who has seen the correspondence told Reuters.

After the warning, Raiffeisen dropping plans for the industrial stake linked to tycoon Oleg Deripaska, marking a setback for the lender more than two years after the invasion of Ukraine.

The pressure underlined Washington's willingness to confront European banks about their Russian ties.

Yellen in the German financial capital Frankfurt on Tuesday bank CEOs warned to step up efforts to comply with sanctions against Russia and to stop circumvention efforts to avoid the possibility of severe penalties.

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