Russia’s Invasion of Ukraine: Impact on Financial and Non-Financial Risks

Summary of Discussion

We are already seeing serious implications from Russia’s invasion of Ukraine, including the humanitarian crisis in Ukraine; the refugee crisis in Europe; a looming global food crisis; the risk of further military escalation, including the potential use of nuclear weapons; the energy crisis in Europe; cyberwar; and the disruption of commodity markets, supply chains, and international trade.

There are dire financial and non-financial outcomes to assess and mitigate.


Topic: 5 specific Risks to financial institutions and countries:

  1. Violation of sanctions placed on Russian individuals and entities –banks need to keep an eye on the sanctions lists and their KYC and compliance procedures to ensure they are not in violation.
  2. Actual and potential loss of business in Russia – many banks have limited their exposure to Russia, either by completely cutting ties or pulling back, such as by refusing to take on any new business in the country.
  3. Cyber threats – Barclays said it must remain vigilant to protect itself from second and third-order effects, including cyber threats from Russian actors.
  4. Indirect threats – the effects of the war on the European and global economy, such as food and energy prices increasing. These indirect risks, and the risks of recession, are probably going to be some of the biggest concerns for financial institutions.
  5. War between NATO and Russia – this is the biggest risk of all.


Topic: Key Geo-Strategic and Broadly Political Risks

  1. Despite things that have been said in the press, we should not assume that this conflict is going to be over quickly.
  2. The Russian military doctrine is very different from how NATO conducts itself in military action. One key difference is that to a Russian commander, it does not matter whether a weapon is nuclear, chemical, or biological, if it is deemed suitable for a job, then they will have significantly fewer inhibitions about using it than a Western officer would.
  3. Finnish and Swedish accession to NATO should not be underestimated, as it adds a huge sway to NATO’s direct frontier with Russia and adds two very competent militaries.
  4. The Turkish response to the accession of Finland and Sweden to NATO is typical and is expected to be resolved quickly, yet will not be dropped immediately, even once the accession is complete.
  5. Western support for Ukraine has been pretty solid so far, but differences are emerging, and financial institutions need to watch and think about these. Some of these differences include:
    1. Arms and other support for Ukraine.
    2. Speed, scope, and application of sanctions toward Russia.
    3. How to treat Russia and how hardline you should be.
  6. In the longer term, European security arrangements will need to be revisited and redefined.


Topic: Outlook on the Global Economy Following the Invasion of Ukraine

The invasion of Ukraine has changed the global landscape. While it is unclear when there will be a resolution, there is no doubt that there will be long-term financial consequences in addition to the devastating effects on the people of Ukraine. The economic conflict that has developed will mean that growth is lower, and inflation is higher, increasing the challenges for policymakers.

As for the growth effects, we are seeing a redistribution of income from commodity importers to exporters on a global level. Commodity producers – oil, metals, food – are seeing real income gains and will be less affected. However, commodity importers will be impacted, including large importers such as Europe, as well as poorer energy and food importers who may be the most vulnerable. These poorer countries also rely on capital inflows, which will be more difficult to receive.

Western central banks were already struggling with high inflation. Banks are trying to maintain credibility as supply shocks continue. Even if inflation has peaked, it will likely be slow to come down.


Topic: 3 Levels of Risk Impact

  1. Level One:
    1. Credit risk – Portfolios that are already impacted in countries affected by the conflict
    2. Market Risk – Immediate implications of government responses: commodity prices, securities trading, index adjustments
    3. Liquidity Risk – What does it mean for the market and commodity traders? What happens in the margin call? How much support will be needed?
    4. Cyber & IT Risk – Banks will be targets
    5. Operational Risk – Big players have large operations, including Information Technology, in Ukraine that are impacted
    6. Sanctions – Unparalleled level of complexity that we haven’t seen before
  2. Level Two:
    1. Credit risk – Supply chain issues at a corporate level; cost of living crisis at a personal and retail level
    2. Social disruption – In 2018, the increase in fuel prices caused by Macron’s green tax fueled the yellow vest movement in France.
    3. Market risk – Risk of government making sharp decisions on imports and exports, creating unpredictable ripple effects
    4. Cyber/IT risk – Corporate hackings will have impacts on customers, portfolios, insurance groups, and more, including collateral damage
    5. Operational – Question of how to unwind Russian ownership of companies in Europe to ensure business continuity and minimal economic disruption, and to make sure proceeds don’t continue to fund the regime. Then there is the question of whether companies should continue operating in Russia and, if they do, what it may mean for operations in the EU & US. Corporates are increasingly facing pressure to pull business out of Russia.
  3. Level Three:
    1. Energy security – as countries focus on this it will impact how they invest. There will be questions about what is socially acceptable. In the short term, it will likely mean more coal mining and oil fracking and will impact transition plans towards net zero. It may also affect what is available for lending and insurance.


There have already been significant consequences from the Russian invasion of Ukraine, and there will be many long-term consequences to follow. However, it is unclear what is yet to come and when it will be resolved. Chief Risk Officers should be prepared for new challenges to come and for risks to continue to grow.

Model Risk Management Solutions Team

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