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Russia Ukraine Crisis Could Spark A Global Financial Crisis

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The world is a Global Village … You must have heard this sentence many times. Could the Russia-Ukraine crisis lead to a global financial crisis if this is true? After the Corona epidemic, the Ukraine Crisis changed the global economy has created a new challenge in front of him. Dozens of countries, including America and Europe, have imposed many economic sanctions on Russia.

Russian banks have been separated from the international payment system SWIFT. All the assets of the Russian government and companies in Western countries have been frozen. Apart from this, Russia’s foreign reserve of $630 billion has also been stopped from being used. Due to all the economic sanctions imposed on Russia, rating agencies have downgraded Russia’s sovereign rating.

Moody’s and Fitch downgrade Russia’s rating to junk. This means that it is no longer safe for investment. Also, Russia can now default in the payment of its debt.

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Many such banks have debt on Russia is more than 100 billion dollars. The fear of default now haunts them. Experts say that this may start a financial crisis like 2008. During the recession of 2008, the fear of default in banks had settled. Due to this, he stopped lending.

Europe’s banks will be worst affected.

It is believed that the worst effect of the sanctions imposed on Russia will be on the big banks of Europe. They have distributed massive debt in Russia. Europe, especially Austria, France and Italy, will be most affected. According to the Bank for International Settlement report, banks in France and Italy have an exposure of $ 25 billion to Russia, while the exposure of Austrian banks to Russia is $ 17.5 billion.

America’s exposure to Russia is significantly less

After Crimea’s annexation in 2014, the US reduced its exposure to Russia. Despite this, Citigroup’s exposure to Russia is $10 billion. Citibank’s assets are close to $ 2.3 trillion or $ 2,300 billion. The bank’s Russia exposure is much less than the asset in such a situation.

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Ukraine’s $60 billion bonds declared junk.

Apart from Russia, the economy of Ukraine has also been downgraded. It is believed that Ukraine will also default in paying its debt. Its $60 billion bond debt has been junked. Banks whose operations are spread across Russia and Ukraine have been badly affected. Global rating agency Fitch believes that France’s international bank BNP Paribas and Credit Agricole will be badly affected due to the Ukraine Crisis. Their business is spread in Ukraine.

Significant exposure of these two European banks in Russia

French multinational investment bank Société Générale and Italy’s UniCredit have many operations in Russia. Their contribution to the loan given to Russia is very high. In such a situation, their condition may worsen. Apart from all this, another bad news for European banks is that they have to pay more charges for collecting US dollars in the Euro swap market. This is affecting their margins. Dollar reserves with banks are necessary for international trade.

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Geeta Kumar
Geeta Kumar
Geeta Kumar is Our Digital Media Specialist at Spot News 18. She Manages our Digital Media Account Globally. She loves to be connected on Social Media.

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