Alexandra Schwarz Goerlich, Pete Schroeder, and Lawrence White

WASHINGTON/VIENNA/LONDON (Reuters) -European banks on Tuesday were bracing for the fallout from fresh global sanctions as the Ukraine crisis escalated, although U.S. bank executives said they expected the industry to be insulated from major disruption after pulling back from Russia in recent years.

Europe’s banks, particularly in France, Italy and Austria are among the most vulnerable to Russia and have been monitoring the situation for weeks, should countries impose sanctions.

HSBC warns of market contagion, and Raiffeisen Bank International Austria (RBI), says it is preparing “crisis strategies.”

On Tuesday, Britain became the first to respond to Russia’s recognition of two regions in Ukraine that were separatists and sent troops. Britain struck five banks and three people, which was a mild deal that Prime Minister Boris Johnson stated allowed him to reserve “more powerful sanctions” in case of “Putin’s next move.”

Additionally, sanctions were agreed by the European Union that will allow more lawmakers, officials and politicians to be blacklisted, prevent EU investors from buying Russian state bonds, target separatist exports, and ban EU legislators from trading in them.

Josep Borrell from the EU’s Foreign Policy Chief stated that this package of sanctions “will hurt Russia and will cause a lot of pain.”

Olaf Scholz (German Chancellor) said he stopped the approval of Nord Stream 2, a vital future source of energy in Europe.

On Tuesday afternoon, Joe Biden, U.S. President, announced sanctions against two Russian banks and the sovereign debt of Russia. He also warned Russian families and elites that Russia will pay a much higher price for its continued aggression.

The United States and the European Union have been attempting to blacklist specific people since Russia’s 2014 annexation and attempted to restrict Russia’s access to Western capital markets. They also imposed restrictions on arms trade as well as other limitations on technology trade, including that in the oil and gas sectors.

Banks, especially in the United States were able to lessen their Russia exposure. This made some bankers less concerned by the possibility of sanctions and more focused instead on the economic impact of geopolitical tensions.

HSBC’s boss said Tuesday that there was a “wider contagion of global market risks” despite the fact that the bank was only limited in direct exposure.

Noel Quinn, a reporter for Reuters said that “It is clear there is a possibility of contagion. But it will depend upon the severity and severity of the retaliation if a conflict exists.”

Four industry experts said that U.S. bank executives don’t expect sanctions to cause a significant impact on American banks or to spark contagion risks.

The Bank for International Settlements reported that U.S. creditors had only $14.7 billion in outstanding claims on Russia during the third quarter 2021.

Three sources claimed that U.S. financial lobby groups and banks have met with the Biden administration in recent days to discuss sanctions. One of them said that the banks have spent the last 24 hours trying to identify potential targets so that they can move fast.

Another claimed that the administration had reached out before Christmas to the executives of the industry and informed banks about its plans.

One person stated that the U.S. could cause disruption if Russia is denied access to SWIFT’s international payment network. However, this seems unlikely.

This is because Russia’s withdrawal from the international payment network would severely damage its economy, everyday citizens and create compliance and complexity risks for global banks.

The RBI has important operations in Russia, Ukraine. It stated that business is now normal but, “in the event there’s an escalation”, the crisis plans the bank had been working on over the last few weeks will be put into action.

The shares of the Austrian Bank fell 7.48% Tuesday.

According to ING, a Dutch lender, ING is a strong presence in Russia.

According to one Danish pension fund, it was going to stop any Russian investments immediately after Putin entered Ukraine.

Bankers expressed hope that governments will coordinate their efforts to create the fine print in light of the fact that there are several countries that have recently implemented new sanctions. This would help reduce the complexity and risk for the entire industry.