ProcurementIQ is monitoring the ongoing situation in Ukraine and will provide updates and analysis on procurement impacts as information becomes available. See the Recent Developments section of our reports for more information.
The Russian invasion of Ukraine is disrupting financial markets in Europe while major lenders from countries such as Italy and Austria scramble to unplug themselves from complex financial relationships with Russian banks to avoid violating new Western sanctions. In contrast, US bank executives expect that US financial institutions will face minimal disruptions as Russian entities are blocked from global financial systems.
Following Russia’s 2014 invasion of the Crimean Peninsula, US financial institutions have been gradually distancing themselves from Russian companies and governments. The United States has placed increasingly aggressive economic sanctions on Russia in recent years, and the Biden administration gave public warning that the United States would expand Russian sanctions if Ukraine were invaded.
With ample warning time and experience dealing with US sanctions on foreign entities, US banks have positioned themselves to mitigate damage resulting from the invasion. Downstream financial service markets are not expected to experience major price increases related to the invasion of Ukraine.
The primary concern for US financial institutions regarding the invasion of Ukraine is the potential for retaliatory cyberattacks. As US financial institutions such as Visa, Mastercard, and American Express sever ties with Russian banks, US financial institutions are closely monitoring their systems for potential disruptions. As of March 3rd, no major cybersecurity events outside of Ukraine have been attributed to Russian actors.
Impacted Markets
Investment Management Services
- One of the few US banks exposed to significant financial risk involving the Russian invasion of Ukraine is Citigroup Inc. Citigroup has an estimated $5.4 billion tied to the Russian economy. However, this figure comprises less than 5% of Citigroup’s balance sheet, so the investment bank’s exposure to Russian business is low compared to many European banks.
Global Financial Markets
- While direct risks to US financial institutions are low, all sectors of the US economy are vulnerable to broader global disruptions stemming from potentially violent escalations from Russian or Western powers.
- Instability in Russian and European financial markets may create broader global disruptions that are difficult to predict.
- Fed chair Jerome Powell signaled an interest rate increase of 0.25% on March 2nd despite the economic disruption resulting from the Russian invasion of Ukraine.
- Some market vendors are especially sensitive to rate increases because of their heavy reliance on financing to fund long projects, such as construction companies.
- While the announced rate increase harms vendors that engage in frequent borrowing activities, US businesses across all sectors of the economy benefited from reduced uncertainty when the Fed announced it would move forward with its planned rate hike, and equity markets experienced a small rally accordingly.
Cryptocurrency Exchanges
- Cryptocurrencies present risks to Western powers that sanctioned individuals and institutions will use the digital assets to work around Western efforts to freeze Russian assets.
- The world’s largest cryptocurrency exchange, Binance, announced that it would not block Russian users from its platform unless those particular users faced sanctions or legal actions.
- This announcement follows a request from Ukrainian politicians to block Russian users and prevent the circumvention of Western sanctions.
Credit Card Payment Processing Services
- Credit card processing companies and other financial institutions are monitoring their systems in anticipation of potential retaliatory cyberattacks from Russia. As of March 3rd, these threats have not materialized, despite widespread expectations of cybersecurity events following the invasion.
- A growing list of US cybersecurity companies is hosted on Github, with vendors offering free services, data, and other forms of assistance to those seeking protection against potential Russian cyberattacks.
