The European Central Bank (ECB) is increasing its scrutiny of Raiffeisen Bank International and UniCredit, urging both banks to maintain additional capital reserves to mitigate risks associated with their operations in Russia.

Concerns over Russian Operations

The ECB is concerned about the banks" activities in Russia, where they reportedly lack effective control over their operations, raising concerns about potential financial exposure.

The ECB may adjust the individual capital requirements for Raiffeisen and UniCredit to reflect the unique risks posed by their Russian business engagements.

Demands on Raiffeisen and UniCredit

Raiffeisen also faces separate demands from the ECB regarding its commercial real estate loans.

Despite geopolitical tensions and regulatory pressures, Raiffeisen and UniCredit have been slow to reduce their presence in Russia, which has led to friction with the ECB.

Both banks have been mandated by the ECB to scale back their Russian operations, including international payment processing.

Efforts to Align with ECB Expectations

Raiffeisen has been actively working to align with ECB expectations by reducing its financial ties to Moscow, particularly in terms of euro payment processing.

UniCredit, on the other hand, has filed a lawsuit against the ECB over its directives.

Capital Buffers and Potential Write-Downs

The ECB"s insistence on capital buffers for Raiffeisen and UniCredit reflects a broader strategy to establish a robust legal framework for its decisions.

The potential requirement for these banks to hold additional capital reserves could also prepare them for the possibility of having to write down their Russian operations entirely.

Ongoing Evaluation and Discussions

The ECB will continue to evaluate the risks associated with European banks" activities in Russia and engage in ongoing discussions with these institutions regarding their capital requirements.

The regulator"s annual review process, known as Pillar 2 requirements, allows for tailored assessments of individual banks" risk profiles, with legally binding decisions expected in December.

Challenges for European Banks

The ECB"s push for Raiffeisen and UniCredit to bolster their capital reserves highlights the ongoing challenges faced by European banks operating in Russia.

The ability of these institutions to adapt to the evolving landscape will be crucial in maintaining financial stability and compliance with both European and international regulations.