8th Edition / June 2022

EBI BrieFin Logo

BrieFin #8 

The War in Ukraine and the impact on monetary policy and the financial system

“Our country is the one our soul longs for, the one which is dearest of all to us. My country is—you!

That is my native land, and I bear that country in my heart.” 
(Nicolai Gogol, Taras Bulba)

More than four months have lapsed since the illegal and unprovoked invasion of Ukraine started. During these days we have witnessed examples of how bright (and how dark) the human soul can be: a heroic resistance in Mariupol by outnumbered Ukrainian forces and, in its antipodes, scenes of atrocity and ruthless genocide in Bucha, which bring us back not so distant memories of a Europe bleeding to death and total war.

During these uncertain times, the EU, together with other jurisdictions, has put in place several economic measures aiming at (i) supporting Ukraine during this terrible war-time effort and (ii) debilitating the Russian economy and its financial system with a view to deter the country from continuing its illegal aggression and cut-off the resources behind its war-machine.

The foregoing has produced multiple direct and indirect monetary and financial impacts in the EU, in Ukraine and Russia and, broadly, all around the world. This eighth BrieFin, therefore, analyses the foregoing monetary and financial impacts bringing together, as usual in this publication, the views of leading academics, regulators, the industry and researchers.

Our first contribution by Professor Christos V. Gortsos, Professor of Public Economic Law at the Law School of the National and Kapodistrian University of Athens and President of the Academic Board of the EBI, provides an interesting insight on how the restrictive measures imposed by the EU on Russia led to the resolution of Sberbank Europe AG and its two subsidiaries in Croatia and Slovenia.

The second contribution corresponding to the Regulator´s view is provided by Agnieszka Mazany (Team Lead, Directorate Supervisory Strategy and Risk at the European Central Bank) and Mario Quagliariello (Team Lead and Director of the Supervisory Strategy and Risk Directorate at the European Central Bank, respectively). This contribution offers a complete overview on how the illegal invasion of Ukraine might challenge European banks (well beyond direct exposures) from a macroeconomic perspective.

The Industry view is brought by Oleh Zahnitko, partner at INTEGRITES (Ukraine). This contribution offers first-hand insights on the Ukrainian National Bank’s prudential and monetary actions taken amid the illegal war started by Russia.

The Researcher view is brought by Mariia Domina Repiquet, Assistant Professor in Business Law at the University of Lorraine. This contribution looks at potential opportunities to help Ukraine to rebuild its economy, by exploring the potential use of European social entrepreneurship funds (“EuSEF”), European venture capital funds (“EuVECA”) and European long-term investment funds (“ELTIF”).

Finally, the Young Researchers’ view is offered by Stavros Kourmpetis, doctoral researcher at the National Kapodistrian University of Athens and member of the EBI Young Researchers Group. This contribution analyses the complex and changing landscape regarding the use of Fintech (and particularly cryptocurrencies) by Ukraine and its aggressor Russia.

This special issue aims at covering, from different and interlinked angles, the financial and monetary impacts that the illegal invasion of Ukraine has created. This endeavour is not only an act of academic rigour, but also one of moral responsibility. We hope that readers not only enjoy this lecture but also increase their awareness of the prudential and financial intricacies that this war is posing to the world.

Cecilia del Barrio Arleo / Carlos Bosque Argachal

Table of Contents

The Professor's View

Christos V. Gortsos

Banking resolution in action at the outbreak of the Ukrainian crisis: the ‘Sberbank case’


The Supervisors' View

Agnieszka Mazany
Team Lead, Directorate Supervisory Strategy and Risk at the ECB

Mario Quagliariello
Director of Supervisory Strategy and Risk at the ECB

The impact of the war in Ukraine on European banks


The Practitioner’s View

Dr. Oleh Zahnitko
Partner, INTEGRITES (Ukraine)

Role of National Bank in Ukraine’s Macroeconomic Outlook during 
February – April 2022


The Researchers' View

Mariia Domina Repiquet

Assistant Professor, University of Lorraine

How to rebuild Ukrainian economy after war? Some thoughts on the role of EuSEF, EuVECA and ELTIF


Young Researchers' View

Stavros Kourmpetis

National & Kapodistrian University of Athens, EBI Young Researchers Group

FinTechs on Ukrainian War


1. The Professor's View

Christos V. Gortsos

Prof. National and Kapodistrian University of Athens and President of the Academic Board of EBI

Banking resolution in action at the outbreak of the Ukrainian crisis: 
the ‘Sberbank case’

I. Immediately after the outbreak of the Russian Federation’s military aggression against  Ukraine, on 28 February 2022, the Council of the EU adopted a package of sectoral restrictive measures (sanctions), including, inter alia, a ban on transactions with the Central Bank of the Russian Federation (see Gortsos 2022). The reputational effect of this military aggression has also been felt in the EU banking system (and in particular within the Banking Union) where Russian banks were operating. In particular, Sberbank Europe AG, a parent credit institution established in Austria (100% subsidiary of Sberbank Russia, Russia Federation’s largest bank) and its two subsidiaries in Croatia and in Slovenia  had started experiencing significant deposit outflows. Thus, in order to prevent negative externalities to the banking system in the euro area, preserve financial stability and protect bank depositors under these conditions, the European Central Bank (‘ECB’) assessed, on 28 February, that these credit institutions, which were significant and, hence, under its direct supervision pursuant to Article 6(4) of the Single Supervisory Mechanism Regulation (‘SSMR’), were failing or likely to fail (FOLTF). This assessment was based on the consideration that, taking into account their deteriorating liquidity situation, there were sufficient grounds supporting the determination, in accordance with Article 18(1) of the Single Resolution Mechanism Regulation (‘SRMR’), that they would, in the near future, be unable to pay their debts as falling due (see ECB press release; see also non-confidential version of the FOLTF assessment. On the same date, the Single Resolution Board (‘SRB’) also determined that these credit institutions, which were under its remit as well, were failing or likely to fail by virtue of the same SRMR Article (see SRB press release).

II. It was under these circumstances that the newly-established so-called ‘moratorium tools’ were also activated for the first time.  These tools give resolution authorities the power to suspend any payment or delivery obligations pursuant to any contract to which a credit institution is a party after the determination has been made that it is ‘failing or likely to fail’, with a view to avoiding the further deterioration of its financial conditions and, thus, contributing to its stabilisation in the period before, and possibly after, its resolution (see BRRD, new Article 33a). During this moratorium, which was implemented until the end of 1 March, depositors were allowed to withdraw a daily allowance amount, as determined by the respective national resolution authorities (‘NRAs’).

III. The SRB decisions concerning the resolution of these credit institutions were taken on 1 March. Unlike a previous case involving a group (ABLV ), this time its decisions were not the same for all group members. As regards the Austrian parent of Sberbank Europe AG, the SRB decided that no resolution action was necessary, after having assessed that the conditions for resolution in accordance with Article 18(1) SRMR were not met. This credit institution was considered as not providing ‘critical functions’ to the economy  and its winding-up under normal insolvency proceedings would not have a negative impact on financial stability or the economy in Austria;   hence, the ‘public interest’ criterion (in the meaning of Article 18(1) and (5)) was not fulfilled.

On the contrary, for the two subsidiaries in Croatia and Slovenia, the SRB adopted, pursuant to Article 18(6) SRMR, resolution schemes (see European Commission) and decided to transfer all shares of the group’s Croatian subsidiary to the Croatian Postbank (Hrvatska Poštanska Banka) and of the group’s Slovenian subsidiary to Nova Ljubljanska Banka (NLB). This decision was taken based on the assessment that, unlike in the case of their parent institution, there was, indeed, a ‘public interest’ in resolving these two subsidiaries to protect financial stability and avoid disruption to the Croatian and Slovenian economies.

Accordingly, taking also into account that the determination was made that there was no reasonable prospect that their failure could be prevented within a reasonable timeframe by taking in respect of them any ‘alternative private sector measures’ or any ‘supervisory action’, all three resolution conditions set out in Article 18(1) were met in these cases (see SRB press release on all three cases; see also non-confidential version of the resolution decisions and valuation reports).

[1]  The cut-off date for information included in this brief paper is 12 June 2022. It is noted that the parent Sberbank Europe AG also had subsidiaries in the Czech Republic, Hungary, Bosnia and Herzegovina and Serbia, as well as a branch in Germany. 

[2] These harmonised tools were introduced by amendments to the EU resolution framework pursuant to the legislative ‘2016 banking package’ and in particular by Directive (EU) 2019/879 of the co-legislators of 7 June 2019 “amending Directive 2014/59/EU [Bank Recovery and Resolution Directive, ‘BRRD’] on loss-absorbing and recapitalisation capacity of credit institutions and investment firms (…)” (OJ 150, 7.6.2019, pp. 296-344).

[3] In that case of February 2018, following the decision by the ECB to declare them ‘failing or likely to fail’, the SRB decided not to resolve two credit institutions belonging to the same group, namely ABLV Bank, AS, (at that time) Latvia’s third largest credit institution, and its subsidiary ABLV Bank Luxembourg S.A. with Article 18(1) SRMR were not met. This credit institution was considered as not providing ‘critical functions’ to the economy  and its winding-up under normal insolvency proceedings would not have a negative impact on financial stability or the economy in Austria;   hence, the ‘public interest’ criterion (in the meaning of Article 18(1) and (5)) was not fulfilled.

[4] On the contrary, for the two subsidiaries in Croatia and Slovenia, the SRB adopted, pursuant to Article 18(6) SRMR, resolution schemes (see European Commission) and decided to transfer all shares of the group’s Croatian subsidiary to the Croatian Postbank (Hrvatska Poštanska Banka) and of the group’s Slovenian subsidiary to Nova Ljubljanska Banka (NLB). This decision was taken based on the assessment that, unlike in the case of their parent institution, there was, indeed, a ‘public interest’ in resolving these two subsidiaries to protect financial stability and avoid disruption to the Croatian and Slovenian economies.

Accordingly, taking also into account that the determination was made that there was no reasonable prospect that their failure could be prevented within a reasonable timeframe by taking in respect of them any ‘alternative private sector measures’ or any ‘supervisory action’, all three resolution conditions set out in Article 18(1) were met in these cases (see SRB press release on all three cases; see also non-confidential version of the resolution decisions and valuation reports). 

[5] The conditions for a function to be considered ‘critical’ are set out in Article 2(1), point (35) BRRD and in Article 6(1) of Commission Delegated Regulation 2016/778 of 2 February 2016 (OJ L 131, 20.5.2016, pp. 41-47) adopted on the basis of Article 2(2) BRRD.

[6] Insolvency procedures are being carried out according to Austrian law, while eligible deposits are protected by activation of the pay-out function of the national deposit guarantee scheme.

2. The Supervisors' View

Agnieszka Mazany¹
Team Lead, Directorate Supervisory Strategy and Risk at European Central Bank

Mario Quagliariello²
Director of Supervisory Strategy and Risk at European Central Bank

The impact of the war in Ukraine on European banks

1. Introduction

In the aftermath of the COVID-19 pandemic, the outlook for European banks was positive. While there were downside risks linked to the evolution of the disease, the strength of the economic recovery and potential repricing of risk premia, the banking sector appeared robust and appetible to investors. The Russian invasion of Ukraine, an appalling aggression and a shock to the European continent and its citizens, changed the landscape also for the banking sector.

The direct impact of the war is material only for a limited number of institutions: European subsidiaries of Russian parents or European groups with significant stakes in the Russian market. A few banks exited the market due to their interlinkages with Russia and the effect of the sanctions, while for the others the economic consequences are overall manageable. However, the conflict might challenge European banks in other ways, well beyond direct exposures.

First, greater uncertainty, potential further supply chain disruptions and inflationary pressures fuelled by higher energy and commodity prices, cast a shadow on the ongoing recovery of the European and global economies from the recent shock of the pandemic (see Lagarde’s statement at the 2022 IMF Spring Meetings). The high inflation and the deteriorating economic outlook might translate into worsened credit quality, potential repricing of assets and higher costs. Banks may also face operational challenges in implementing and complying with the international financial sanctions imposed in the context of the invasion. Moreover, cyber threats might increase, particularly as a retaliation to sanctions.

2. The transmission channels to banks

2.1. The banking sector at the onset of the war

The euro area banking sector remained resilient throughout the COVID-19 pandemic and strengthened its capital and liquidity position (see Enria). The Common Equity Tier 1 (CET1) capital ratio of significant institutions (SIs) under European banking supervision increased from 14.9% in the fourth quarter of 2019 to 15.5% in the fourth quarter of 2021. Liquidity coverage ratio increased from 146% to 173% in the same period (source: ECB supervisory banking statistics)

The economic shock determined by generalised lockdowns and other distancing measures was cushioned by the extraordinary fiscal, supervisory and monetary support measures.  Asset quality as measured by aggregate non-performing loans (NPL) ratio, which stood at 2.06% at end-2021, continued to improve (see Chart 1), also thanks to the disposal and continued clean-up of legacy NPL portfolios. Profitability rebounded in 2021 after the slump in the pandemic and aggregate return on equity of SIs stood at 6.7% at end-2021. These improvements underpinned the positive sentiment of market participants on the sector’s outlook at the end of 2021 (see Summary of the 2nd Banking Supervision Market Contact Group Meeting, February 2022).

The unexpected invasion of Ukraine had a dramatic impact on these expectations. Our talks with market participants revealed that the initial reassessment of the prospects of the European banking sector, which was reflected in the sharp correction of banks’ share prices, was driven to a large extent by the uncertainty on the impact of the conflict and was disproportionate to the limited banks’ exposures to Russia and Ukraine. In fact, the correction in bank’s equity prices was much more pronounced than the broad European share indices (see Chart 2). While markets initially penalised mostly exposed institutions, they later hit the banking sector at large, following the concerns on the second order effects stemming mostly from energy and commodity price shocks on the economy and asset quality. The correction in prices was however more muted than during the pandemic as the crisis was also perceived as less acute and more circumscribed, at least at the initial stage.

2.2. Direct exposures to Russia and Ukraine

The crisis and the sanctions had immediate consequences for a few individual banks, which had to be wound down or restructured due to the deterioration in their liquidity, operational or reputational situation (see ECB press release on Sberbank Europe AG from 28 February, and RCB Bank on 24 March and DNB’s press release on Amsterdam Trade Bank from April 2022).

Direct exposures of banks under European banking supervision are on aggregate contained. These exposures are concentrated in a few institutions operating in Russia or Ukraine via subsidiaries, which are mostly locally funded. As of end 2021 SIs reported on aggregate around € 75 billion of asset exposures to Russia and € 9 billion exposures to Ukraine – mainly loans and advances (see Chart 3).

Exposed banks would be mainly affected via credit deterioration of Russian or Ukrainian customers, also as the result of the sanctions. In this context, banks are currently reducing their exposures. Most banks with subsidiaries in Russia have disclosed the impact of the extreme possibility of walk away scenarios, showing it could be material but manageable overall. The ECB carried out an analysis of a scenario where banks would entirely write down their cross-border exposures and abandon their subsidiaries in the region. The results show that the capital positions of euro area banks operating in Russia are solid enough to allow them to sustain their compliance with supervisory requirements and buffers in such an extreme case (see “Supervisors’ reaction to the war in Ukraine”).

2.3. Impact through exposures towards vulnerable sectors

Indirect effects of the conflict on banks can manifest through a number of channels. Banks’ credit quality could be adversely affected through their exposures to corporates in the economic sectors which are more vulnerable to the consequences of the war, such as energy intensive sectors or those affected by supply chain disruptions, including selected metals, mining and quarrying, manufacturing or transport sectors (see Chart 3, for energy intensive sectors see Natural gas dependence and risks to euro area activity, ECB Economic Bulletin,1/2022). Moreover, some corporates might had already been negatively affected by the impact of the COVID-19 pandemic, which resulted in higher debt, lower liquidity or poor earnings.

According to ECB estimates, loans to corporates which are both energy reliant and have weak corporate fundamentals constitute 3.8% of corporate loan portfolio of euro area banks (see ECB Financial Stability Review, May 2022). Supervisors are continuously assessing and monitoring banks’ exposures and concentrations to vulnerable firms. This is particularly relevant as, while NPL ratio continued to improve throughout the pandemic, some signs of asset quality deterioration became visible in the second part of 2021. For example, volumes of Stage 2 loans (classified as loans with increased credit risk) remained high throughout 2021 and well above the pre-pandemic levels. The additional strain stemming from the crisis could potentially result in a worse performance of such loans going forward.

Chart 3

Direct exposures of euro area banks to Russia are limited on aggregate, however banks can also be affected through their exposures to energy-intensive sectors

Source: EBA Risk Dashboard and ECB AnaCredit. Left hand side: countries with the largest volumes of banks’ on-balance sheet exposures to Russia, “Other” is the sum of remaining euro area countries; sample: euro area banks included in the EBA’s Risk Dashboard sample. Right-hand side chart: The chart shows exposures to sectors with over 5% share of input from the electricity and gas in their output (as per  “Natural gas dependence and risks to euro area activity”, ECB Economic Bulletin, Issue 1/2022), and additionally to air, water and land transport sectors. Mining and quarrying, non-energy includes mining of metal ores and other mining. 

2.4. Downside risks from the weakened economic outlook

Soaring food and energy prices and negative confidence effects stemming from the conflict as well as the intensifying supply chain pressures resulted in a deterioration of the economic growth and inflation outlook for the euro area. The outlook for the euro area economy remains highly uncertain and will mostly depend on the evolution of the war (see Eurosystem staff macroeconomic projections for the euro area, June 2022). Lower growth, higher prices and rising rates can first of all impact the repayment capacity of banks’ customers and result in asset quality deterioration. Corporates – including banks – might face an increase in input and operating costs, while possible further rise in interest rates might affect their funding costs. While the overall balance sheet fundamentals of the household sector are considered relatively solid, higher inflation might weigh on real disposable income of households, which could be further undermined if the employment situation was to deteriorate (on household and corporate sector situation, see ECB Financial Stability Review, May 2022). These risks are relevant in the context of the increasing vulnerabilities in the residential real estate sector, amid high lending activity and persistent signs of overvaluation in the euro area house prices. Higher interest rates could also negatively affect the valuation of fixed-income assets in banks’ portfolios.

In order to assess the resilience of the euro area banks to adverse macroeconomic scenarios in light of the conflict, the ECB performed a desktop exercise vulnerability analysis using stress testing tools (see box 6 in ECB Financial Stability Review, May 2022). The exercise considered potential losses stemming from exposures to sectors with strong trade links to Russia or dependent on commodity imports from the region, broader macro-financial stress, and increased market volatility. The results show an aggregate resilience of the euro area banking system even under adverse or severely adverse scenarios. In line with previous stress test exercises, credit risk is the main source of capital depletion. Net interest income of banks also weakens as increases in funding costs offset the gains expected from higher interest rates.

2.5. Other effects on the banking system

The fast evolution and complexity of sanctions, as well as their variety across countries constitute an operational risk to the banks. They also challenge banks’ management bodies and internal control functions, which need to swiftly implement and monitor compliance with the existing measures. Breach of the sanctions could result in fines, legal actions, and reputational risks for banks (see also FAQs on Russia-Ukraine war and ECB Banking Supervision).

The invasion has also potentially increased a threat of cyber risks going forward. While significant institutions under European banking supervision have not reported any significant incident so far and the financial sector does not appear to be the main target of cyber-attacks, several agencies have issued warnings against potential malicious activity of Russia’s cyber operatives as a retaliation to international sanctions or targeting countries opposing their actions(see speech by the Director of GHCQ at Cyber UK 2022 or an alert issued by cybersecurity authorities of the US, Australia, Canada, New Zealand and the UK).

3. The supervisory response

Since the start of the war, supervisors have been following the developments in the banking sector, taking into account the full spectrum of risks related to the conflict. For this purpose the ECB established a dedicated contact group across European banking supervision, who exchanged information, assessed and monitored the immediate risks, including those related to sanctions, direct exposures to Russia and the affected region, developments in financial markets, cyber or operational risks (See “Supervisors’ reaction to the war in Ukraine” May 2022). Supervisors also performed deeper impact analysis and expanded internal guidance to Joint Supervisory Teams on targeted prudential or accounting aspects. The ECB also clarified its supervisory approach to distributions, where it would refrain from one-size-fits-all guidance towards banks, but distribution policies would be discussed on a bank level basis taking into account their capital trajectory and individual distribution plans (see ”Invasion of Ukraine - euro area banks so far resilient to a second exogenous shock” by Enria). Going forward, supervisors will try to deepen their understanding of the medium- to long-term consequences of the conflict and adapt the supervisory engagement and strategy accordingly.

4. Supervisory priorities going forward

At the end of 2021, ECB Banking Supervision, while acknowledging the progress in the banking sector and the positive market sentiment, warned against the remaining uncertainty and downside risks, related mostly to the exit path from the pandemic, the effect of the gradual withdrawal of the exceptional public support measures, the possible delayed materialisation of asset quality deterioration, as well as  the vulnerabilities build up in financial markets.

The pandemic had also exacerbated a number of structural vulnerabilities of banks and put more pressure to act to mitigate emerging but potentially  disruptive risks, for instance cyber-attacks. Against an overall improvement of banks’ strength, profitability remained weak and market valuations poor, also reflecting deficiencies of business models. The unsatisfactory steering capacity of the boards of some banks also pointed to material flaws in internal governance and lack of diversity in the decision-making bodies. More frequent and severe natural disasters along with a more ambitious political agenda for addressing climate change made clear the rising exposures of banks to climate-related physical and transition risks.

These dimensions were reflected in the ECB Banking Supervision supervisory priorities set for 2022-2024 which aim to ensure that banks (1) emerge from the pandemic healthy, (2) seize the opportunity to address structural weaknesses via effective digitalisation strategies and enhanced governance, and (3) tackle emerging risks, including climate-related and environmental risks, IT and cyber risks (see ECB Banking Supervision - Supervisory priorities for 2022-2024).

These priorities remain relevant also in the face of the war in Ukraine, which has however exacerbated cyclical risks and reinforced some of the pre-existing concerns. As recently mentioned by the Chair of the Supervisory Board, sound banks’ internal controls and risk management practices remain crucial, particularly for credit risk (see The euro area banking sector, one quarter after the start of the war in Ukraine, by Enria). The effort to monitor the evolution of asset quality in vulnerable sectors should continue, shifting gradually the attention from the sectors hit by the COVID-19 pandemic to those affected by the Russian-Ukraine conflict. Also, market expectations confirm a possible accelerated exit from low interest rates, which may determine a generalised repricing of assets and hit harder highly leveraged borrowers.

We mentioned the need for banks to implement carefully the sanctions imposed to Russian entities to avoid legal and reputational risks. This aspect reinforces the ECB’s call to improve governance and management bodies’ steering capabilities, which are still not satisfactory in several institutions. Similarly, cyber threats have been exacerbated by the war and this requires banks to step-up their operational resilience.  

The war also underscored the excessive reliance of EU industry on carbon fossil fuels and pushed several jurisdictions to accelerate the transition to renewable energy sources to achieve the net zero objective, but also reduce the dependence on import from politically unstable countries.

The timely execution of the supervisory priorities is pivotal to ensure that the banking sector stays resilient and can support households and corporates in a challenging economic landscape.

The authors would like to thank for data support Alessandro Parrini and Jorrit Thunnissen.

[1]  European Central Bank – Banking Supervision (ECB). The opinions expressed are those of the authors and do not involve either the ECB or its Supervisory Board. 

[2] European Central Bank – Banking Supervision (ECB). The opinions expressed are those of the authors and do not involve either the ECB or its Supervisory Board.

3. The Practitioner's View

Dr. Oleh Zahnitko

Partner, INTEGRITES (Ukraine)

Role of National Bank in Ukraine’s Macroeconomic Outlook during 
February – April 2022

I. Introduction

In Although the Ukrainian National Bank’s (NBU) principal function is to ensure the stability of Hryvnia (UAH), as a lender of last resort/regulator/prudential supervisor it must proceed from the priority of achieving and maintaining price stability in the country [i, Article 6].

The NBU has fully embraced the inflation targeting policy (IT) as of the 2016 regime [ii] following decades of administrative restrictions on the exchange operations and selective approach to the oversight until 2014, when the transition to IT commenced.

However, as of his appointment in 2020, Governor Kyrylo Shevchenko has been a “team-player”, softening the discount rate to the tune of the Cabinet of Ministries of Ukraine’s economic stimuli package amid lockout in lieu of the COVID-2019 pandemic. Since H1 2021, when the Russian forces started accumulating on the borders with Ukraine, the NBU has been staying on red alert but without significant moves to curb or loosen the payments balance and/or the primary rates, polishing, however, regulations on the emergency and war situations. The NBU was probably the best prepared state institution when the second phase of war started with a massive Russian-Belarusian aggression, along with the military and intelligence.

II. NBU´s monetary measures adopted amid the Russian invasion

On February 24, the NBU imposed rather drastic but mostly reasonable monetary measures to prevent runs on the banking sector and the deterioration of the balance of payments.

FX measures became the principal policy tools for the open economy of Ukraine, which has no liquid instruments to offer to domestic investors. NBU ordered: (i) the suspension of the foreign exchange interbank market, (ii) fixed UAH exchange rate to US Dollar, (iii) imposed harsh restrictions on the retail Forex transactions, namely, cash withdrawal, payments and sale of the currency to the bank customers and (iv) frozen transactions in rubles (RUB) and Belarusian rubles (BYN) and/or any service to the residents of aggressor states (Russia and Belarus), including companies having such residents as shareholders (regardless of its value [ix, Sections 12, 14, 15 and 16, respectively]).

It is worth noting, that the NBU had gross reserves of US$: amounting 29.1 bn (net US$19 bn) as at February 1, 2022, which justifiably decreased in March, grew back in April [iii] and slid to US$26.6 bn as at May 1 [iv]. In retrospect, the NBU was wise not to force Ukrainian exporters to sell FX revenues – a familiar measure for many years over several crises; it also let savings roam free (except for UAH 100 K cap on daily cash withdrawals). Besides, the NBU went mild on the grey market currency transactions that remained, for some time, the only indicator of the aggregate demand and supply. Moreover, the NBU overlooked any transactions for the banks’ own account.

With respect to the fixed UAH/USD cross-rate, the NBU Board´s revision was under consideration several times, but the benefits of updated cross-rate, according to the NBU official briefings, has not been outweighing, under February – April circumstances, the drawbacks. Thus, NBU is as likely to revise the fixed rate sporadically as to resume the floating rate based on the average interbank currency market; meanwhile, the transactions are mostly between the NBU and the licensees at the fixed rate of exchange – in March-April NBU had a negative balance of US$ 3.98 bn.

Other currencies can be traded at the current cross-rate to US Dollar on the international markets [v]. Notably, prior to February 24, NBU was tasked with principled interventions into the interbank currency market for the stability of the cross-rate. In this vein, during the 2016-2020 GDP growth, the NBU was primarily buying the currency and building reserves. Sporadically it spooked the bull market, e.g., in January 2022 NBU sold US$1.51 bn (net US$1.31 bn) amid intelligence reports on imminent attack by Russia and Belarus. On the reformist side, NBU encouraged offshore banks, especially in the EU, to offer UAH cash exchanges.

The retail transactions were subject to continuing and increasing liberalization. First exemption was introduced on February 24 –later on the same day the very restrictions were imposed. As at May 5, 21 exemptions on the import transactions and 13 exceptions on FX trade operations were put in place by the NBU. The exemptions were added hectically – and NBU never announced priorities or criteria. Nevertheless, most of them were familiar to the market actors and resembled the administrative measures adopted prior to the floating rate (i.e. until 2017). Most criticized exemption was the list of critical imports [vi]. This exemption was introduced by the Government on the premise of army and defence sector needs, which were supposed to be a sole major import to Ukraine.

The list has since been growing unpredictably and, although by mid-April 2022 it covered 88% worth of the goods imported in 2021, it has been told to deliberately discriminating some offshore producers [vii]. Besides, the critical imports list included only the goods and, while some works and services were added in late April, as at the beginning of May the list excluded most of the works and services that accounted for the large share of Ukrainian GDP. NBU made clear its goal to remove FX restrictions in the post-war period, and the phased tactics for that [xvi, page 4], with the rest of details, remain uncertain: thresholds, how often the situation will be assessed, priority areas etc.

Along with the pre-existing constraints on UAH cash transactions, the NBU basically flooded the economy with the money aggregates, so that by March 1 the monetary base jumped up 14.1% compared to February 1: and transferable FC deposits almost doubled. However, in March the situation calmed down a little [viii]. Although NBU restricted UAH cash withdrawals per day, it added UAH cash points by allowing cashback to all cashier desks in the retail shops. It also provided unlimited cash support to the commercial banks, ordered 24/7 access to individual vaults in the bank branches and, as already mentioned, unrestricted service on the mobilization plans [xv, Sections 10, 9 and 6, respectively] and other government expenses (even if only through direct purchase of treasury notes [xvii, page 2]). Non-governmental transfers experienced no change except for transactions in BYN and RUB, which remained banned from February 24 with minor exceptions [xv, Sections 15, 172]. The measures were quite successful on the backbone of the COVID-19-tested cashless economy. NBU, however, suspended capped e-money and moneys on the e-wallets, fearing anonymous and/or uncontrollable funding of the enemy.

III. Some NBU´s prudential measures adopted amid the Russian invasion

Despite the devastating blow to the GDP (the World Bank estimates the sinking roughly at 45.1% [ix, Table 1.4 on page 36]), there are some signs showing high trust in the stability of the financial sector under the NBU’s oversight.

First, no banking institution has been reported as troubled, except two banks indirectly controlled by the Russian government that were put for liquidation on February 25, 2022 -and intervened already since 2021. The foregoing must be compared to the 33 banks that went bust in 2014, when Russia direct and proxy war started, and to the 71 banks removed from the market between 2014-2021 [x]. Second, the administrators of the banking institutions that were put in bankruptcy before 2022, reported sale of the assets and collection of the receivables during February-April without significant disruption [xi]. Third, savings guaranteed by the deposit insurance scheme increased during the month of March 2022 by 8.1% and on April 1 were notably higher than on January 1, 2022 [xii]. Thus, the NBU has been building its measures on the significant public trust and on an institutionally resilient system. Consequently, the Cabinet of Ministers of Ukraine has successfully made several war bond placements (they call them publicly “military bonds”) in UAH and US Dollars [xiii]. Notoriously, NBU decided not to apply any penalties to banking institutions during the martial law [xiv, Sections 5-8] and had been officially referring to this loophole in response to the bank’s association complaints on the issues with compliance due to the business disruptions caused by the occupation, failures in the transport, mail, or telecommunications infrastructure [xv]. At the same time, NBU confirmed a two-year availability to the banks of the unsecured re-financing, as well as unlimited access to cash [xvi, Sections 11 and 10, respectively].

Some would say, this commentator including, that reliance on the self-regulation of the banking institutions is a short-sighted measure. One may recall that the banking system has been operating under a proper supervision only a couple of years, and major perpetrators that milked out Ukrainian banks in the recent history have never been sentenced or had their funds seized. Too many actors in the system can easily revert to the practices that abuse the system. It is worth mentioning that, although banks’ own transactions were held intact initially, the regulator had to impose quantitative restrictions on the “creative” schemes used to wash away the foreign currency: (i) the purchase of UAH in cash from foreign banks; (іі) using derivatives on UAH cross-rates or indices  (except swaps); (iii) deviating from fixed rates for retail transactions with customers; (iv) short and long FX positions [x, Sections 123 - 127]; and (v) FX-denominated savings certificates [x, Section 53].

The NBU self-restrained its decisions on the discount rate despite accelerating inflation – it was left at 10% p.a. on February 24, March 3 [xviii ] and April 14 [xiii]. As mentioned, NBU “temporarily” has been avoiding the inflation target of 5± 1% ever since the current governor was appointed amid pandemics in 2020. This February, the NBU had an easy choice to follow its policies of stimulating the spending and overlooking inflation despite the NBU’s statutory mandate to maintain stability of the prices and Hryvnia. Later on April 15, the NBU Board of Directors indulged NBU governor and management board to disregard the discount rate as a money market instrument entirely citing the martial law as an excuse and requiring to renew IT – discount rate interventions as soon as NBU will have “possibility with acceptable likelihood to forecast the effects […] on the policy horizon, and the monetary transmissions channels’ functioning will be restored”[xviii, page 3]. Such criteria can hardly be quantified, so the NBU boards will be tempted to stick to the Government’s playbook longer than justified. The inflation, therefore, is largely unrestrained and further fuelled by the unconditional macrofinancial support to the NBU. Although the NBU believes the inflation is still under control due to the tax liberalization and administrative restrictions [xix], the latter appear to be the paper dragon causing shortages of the goods and commodities and pushing up the shadow market share.

Quite unexpectedly, since the end of 2021 NBU has underpinned its effort to isolate Russian and Belarusian capital domestically and internationally, claiming such task an integral part of its monetary policy. NBU’s theory of choice, hence, is a zero-sum game in the international financial market, quite a turnaround from claimed “cooperation synergy” and public advocation of the foreign residents that are not directly involved in the aggression and/or proxy war since February 2014.

IV. Conclusion

In conclusion, NBU’s monetary play during hostilities by Russia and Belarus alliance has been a back vocal in the executive branch rock-band; such role, nevertheless, is a minor policy twist on the backdrop of power struggle in the NBU leadership: the legacy of institutional capacity built during 2014-2019 is being challenged by Keynesian followers on the board.


i Law of Ukraine “On the National Bank of Ukraine” dated 20 May 1999 (as amended)

ii https://bank.gov.ua/en/monetary/about/inflationtargeting

iii https://bank.gov.ua/ua/markets/international-reserves-allinfo/dynamics

iv https://biz.nv.ua/ukr/experts/kirilo-shevchenko-valyutniy-kurs-cini-ta-stabilnist-bankivskoji-sistemi-v-ukrajini-50238688.html

v https://bank.gov.ua/ua/markets/currency-interventions

vi List of Goods for Critical Imports: Resolution of the Cabinet of Ministers of Ukraine no. 153 dated 24 February 2022 as amended (https://zakon.rada.gov.ua/laws/show/153-2022-%D0%BF#Text)

vii  Based on industry associations information, including the online internal conferences and meetings with the officers of the NBU and the Ministry of Economy of Ukraine (use of records is restricted)

viii https://bank.gov.ua/files/3.1-Monetary_Statistics_e.xlsx

ix https://openknowledge.worldbank.org/handle/10986/37268

x https://bank.gov.ua/ua/supervision/reorganizat-liquidat/reorganiz-history

xi https://www.fg.gov.ua/articles/51205-nadhodzhennya-koshtiv-do-bankiv-v-upravlinni-fondu-protyagom-bereznya-2022-roku-perevishchili-15-mlrd-grn.html

xii https://www.fg.gov.ua/articles/51211-zbilshennya-sumi-vkladiv-fizosib-u-bankah-uchasnikah-fondu-za-i-kvartal-2022-roku-perevishchilo-27-mlrd-grn.html

xiii https://bank.gov.ua/ua/markets/international-reserves-allinfo/dynamics

xiv On Certain Matters of Ukrainian Banks’ and Banking Groups’ Activities: NBU Board Resolution no. 23 dated 25 February 2022 as amended (https://zakon.rada.gov.ua/laws/show/v0023500-22#Text)

xv “Information materials generalized based on the questions from representatives of the banking system” (in Ukrainian) - mailed by the NBU to the banking industry association, in author’s possession

xvi On Banking System’s Operation during Martial Law: NBU Board Resolution no. 18 dated 24 February 2022 as amended (https://zakon.rada.gov.ua/laws/show/v0018500-22#Text)

xvii https://www.youtube.com/watch?v=URnFeQLZ4fQ&t=5s, https://bank.gov.ua/ua/news/all/natsionalniy-bank-ukrayini-vidkladaye-uhvalennya-rishennya-schodo-oblikovoyi-stavki

xviii Fundamentals of the Monetary and Credit Policies during the Martial Law – adopted by NBU Board of Directors’ Decision dated 15 April 2022 (available in Ukrainian at https://bank.gov.ua/admin_uploads/article/MPG-ml_2022.pdf?v=4)

xix https://bank.gov.ua/ua/news/all/vistup-golovi-natsionalnogo-banku-kirila-shevchenka-schodo-potochnoyi-situatsiyi-v-ekonomitsi-ukrayini-ta-perspektiv-yiyi-podalshogo-rozvitku

4. The Researchers’ View

Mariia Domina Repiquet

Assistant Professor in Business Law, University of Lorraine (Institut François Gény EA 7301)

Darkness cannot drive out darkness; only light can do that. 
Martin Luther King Jr.

How to rebuild Ukrainian economy after war? Some thoughts on the role of EuSEF, EuVECA and ELTIF


The war in Ukraine has profoundly changed our perspective on human dignity, democracy and the rule of law. What seemed to be unconditional, became rather ephemeral. Courageous Ukrainian people, guided by the President Volodymyr Zelensky, fight every single minute to protect the basic values of the mankind, as depicted in the Charter of Fundamental Rights of the European Union.

Since the war has ravaged Ukrainian territory, affecting millions of people, animals, public services and businesses, it is time to reflect upon the ways to rebuild Ukrainian economy when the long-awaited and well-deserved victory is proclaimed.

Numerous international initiatives can be cited in this respect, such as the 925 million USD mobilized support from the World Bank. However, not all of the allocated funds are grants, i.e. some of them are paid as loans that should be repaid in due time. This is notably the case for collected funds during the Stand Up for Ukraine campaign, whereby out of 10.1 billion USD 5.5 billion USD are issued as loans. We can also cite in this respect a 4 billion EUR credit line of the European Investment Bank aimed at helping EU Member States to bear the costs related to hosting and integrating Ukrainian refugees within their respective jurisdictions.

In this contribution, we would like to look at other opportunities to help Ukraine to rebuild its economy, that is by exploring the potential of European social entrepreneurship funds (“EuSEF”), European venture capital funds (“EuVECA”) and European long-term investment funds (“ELTIF”).

I. EuSEF, EuVECA and ELTIF: setting the scene

EuSEF, EuVECA and ELTIF  represent a special type of alternative investment fund (“AIF”). The managers of AIF (alternative investment fund manager or “AIFM”) are regulated by the Alternative Investment Fund Managers Directive (“AIFMD”).

An AIF is a collective investment undertaking that has no restrictions, at EU law level, on its investment strategies and eligible assets. Nevertheless, national rules transposing the AIFMD may impose additional limits or requirements.  As such, it is predominantly oriented towards professional investors who are considered to have enough knowledge and experience to invest in non-traditional investment funds.  However, national regulatory authorities may allow AIF to be marketed to retail investors within their territory.

Yet, the specificity of EuSEF, EuVECA and ELTIF reside in the fact that their regulation is based both on Manager and Product regulatory approach, contrary to classical AIFs whereby only AIF´s managers and not the funds themselves are regulated at EU level. This brings an additional layer of security for the fund’s investors. To illustrate: ELTIF Regulation states that ELTIF are open to both professional and retail investors  and details the measures aimed at protecting (especially) the latter category.

According to art. 3(1)(d)(ii) and (iii) of the EuSEF Regulation, EuSEF invest in those companies that have as its primary objective “the achievement of measurable, positive social impacts”. These impacts consist of providing “services or goods to vulnerable or marginalized, disadvantaged or excluded persons” or using “a method of production of goods or services that embodies its social objectives”. The investment strategy of EuSEF can thus be resumed as “positive social impact finance”. To illustrate, Phitrust Partenaires, a EuSEF managed by the French fund manager,   invested in the company that offers different educational resources via microSD card to the people that do not have internet access in Western Africa.

According to Recital (1) of EuVECA Regulation,  EuVECA funds should provide financing “to undertakings that are generally very small, that are in the initial stages of their corporate existence and that display a strong potential for growth and expansion”. The additional benefit of using EuVECA funds to finance corporate operations is that these funds “provide … valuable expertise and knowledge, business contacts, brand equity and strategic advice”. EuVECA funds promote “economic growth, contribute to the creation of jobs and capital mobilization, foster the establishment and expansion of innovative undertakings, increase their investment in research and development and foster entrepreneurship, innovation and competitiveness”. The European Investment Fund and the European Commission have already used this fund structure as regards centrally managed EU funds in order to increase capital investments (InnovFin programme).

According to Recital (1) of the ELTIF Regulation, ELTIF is designed to “provide finance of lasting duration to various infrastructure projects, unlisted companies, or listed small and medium-sized enterprises that issue equity or debt instruments for which there is no readily identifiable buyer”. To illustrate, the first two ELTIF authorized by the French Financial Markets Authority in 2016 invested 1.2 billion EUR in long-term infrastructure projects and have a life span of 25 years.

The European Commission has issued its proposal for an amendment of the Regulation 2015/760 on 25 November 2021 in order to make ELTIF more flexible and attractive for investors., with the Council adopting its position to improve ELTIF Regulation on 24 May 2022. The idea behind this proposal, which has seen light before the onset of the war in Ukraine, was based on the aspirations of the Capital Markets Union, Sustainable Finance Strategy and post-pandemic (Covid-19) recovery strategies. No doubt that the situation in Ukraine may call for further adjustments regarding this type of investment.

II. EuSEF, EuVECA and ELTIF: how can they benefit Ukrainian economy?

According to an E&Y study, as of 17 June 2022, there were only 57 ELTIF established in four EU jurisdictions (Italy, France, Spain and Luxembourg). Yet, it is highly likely that we will see a growing number of these funds, as well as of EuSEF and EuVECA, being established in the EU following the onset of the Russian invasion.

These funds can invest in companies and projects that are based both in the EU and third countries. As such, they can invest in the rebuilding of Ukrainian houses, setting forth different infrastructure projects and many other areas that allow Ukrainian people to have appropriate living conditions. Ukrainian government has already recommended that all new buildings should have bomb shelters and improved energy supply systems.

Currently, mobile houses and empty train carriages are in place to provide a temporary “home” for those people who lost their houses due to the Russian invasion in the suburbs of Kiev. As an example, direct and indirect economic losses in Boutcha, a sadly famous suburb of Kiev, due to unprecedented levels of civil casualties, are estimated at 449 million EUR. More than half of that loss is linked to the destroyed residential buildings and social infrastructure.

As regards the situation in Kiev, 390 buildings are damaged, 222 of which are residential skyscrapers. According to Vitali Klithschko, mayor of Kiev, the overall costs of renovation is estimated at more than 70 million EUR.

We should also think about people who became disabled or lost their jobs due to the war. These citizens will need to be provided with a social housing that corresponds to their particular needs (e.g. wheelchair accesses).

All these examples highlight the importance of financing that can be brought into Ukrainian economy by the three types of discussed investment funds.

In addition, the investments can be made in those services that promote education, research innovation and social wellbeing. Some examples may include:

  • developing inclusive educational system in Ukraine whereby all children can benefit from distance learning (which includes providing free laptops and Wi-Fi to those not able to pay for it themselves);
  • offering free English language classes for children and adults who want to study or work abroad;
  • financing research on the advanced medical practices in times of war, developing medical equipment that can function without energy;
  • setting forth private psychological clinics that can provide their services to all those dealing with war-induced anxiety and post-stress traumatic disorder;
  • creating animal shelters where abandoned animals can have a good quality of life; and
  • investing in the development of different environment and energy-saving projects.

We have mentioned previously that EuVECA provide not only capital, but also expertise, strategic advice and network opportunities for target companies. Unfortunately, the war has put a stop on numerous business initiatives in Ukraine as people and businesses need to focus on fulfilling strategic goals, i.e. defending the country and providing vital social services. Once the war is over, Ukrainian entrepreneurs will need to level up to catch up with the latest developments, such as digitalization and sustainability. As such, they will benefit from the advice and business contacts supplied by the managers of EuVECA.

The above-mentioned investment funds have medium- and long-term investment strategy. This means that investors have limited ability to withdraw their capital from the fund before the end of the investment period. When such withdrawal is possible, the process of capital redemption is rigorously written down. This should be compared to hedge funds (another type of AIF), whereby investors can withdraw their funds at a short notice following a simple procedure. As a result, investments made by EuSEF, EuVECA and ELTIF will provide a steady capital flow to Ukrainian economy, thus allowing Ukrainian people to not only rebuild the economy but also benefit from additional job opportunities linked to these long-term projects.

Investors can take advantage from investment opportunities that have a relatively small risk of being affected by market fluctuations due to a time horizon of this type of investment. They can also increase the diversification of investment portfolios via investing in non-traditional assets (Ukrainian companies that operate in socially important areas of activity). In addition, with regard to ELTIF, investors are exposed to lesser risks as compared to traditional private equity funds.

Special incentives to invest in these types of AIFs are set forth in national tax laws. For example, according to Belgian law, the tax treatment of ELTIF does not depend on the distribution obligation, as it is the case for other investment companies (SICAV RDT). The distribution obligation implies that funds must distribute at least 90% of their net annual income as dividends. The reduction in the amount of dividends paid increases in turn the amount of capital gains of the fund that are tax exempt. It would be interesting to follow the developments in this area closely, as countries may provide additional tax relief on the investment in such funds.

Finally, it should be also noted that the ESMA has issued its Public Statement on Actions to manage the impact of the Russian invasion of Ukraine on investment fund portfolios on 16 May 2022 with a view to clarify the obligations of fund managers “to manage investment funds in the best interest of investors”. Such statement aims also at promoting adequate valuation of assets and liquidity management approaches -including, specifically, the possible use of side pockets-. We suggest that further steps should be taken regarding the disclosure obligations of fund managers in order to provide sufficient safeguards for fund investors (both before and during their investment in the fund) to account for potential impacts of the Russian invasion on the funds’ portfolios.

III. Conclusion

The darkness brought about by the Russian invasion is driven out by courage of Ukrainian people and vast international support. Whilst many international initiatives are aimed at providing help “on the spot”, it is also necessary to think about the medium-term and long-term solutions that Europe can offer in this context.

In the respect, we suggest that EuSEF, EuVECA and ELTIF represent interesting solutions that deserve to be explored further. These funds can finance the development of socially important projects and services and promote increased research opportunities in Ukraine. Ukrainian entrepreneurs will also benefit from the expertise and professional network of EU fund managers. In return, investors will profit from medium- and long-term investment opportunities, which have a small dependence on market volatility; they will also achieve the diversification of their portfolios by investing in non-traditional assets. Last but not least, investors can really make a difference by supporting the economy and development of Ukraine thus taking a holistic approach to money-maximizing strategies.

We suggest that EU and national policymakers should think about further ways of making these investment vehicles attractive enough for investors, e.g. increasing the disclosure obligations of fund managers and providing tax relief on the investments in EuSEF, EuVECA and ELTIF.

5. Young Researchers’ View

Stavros Kourmpetis

National & Kapodistrian University of Athens, EBI Young Researchers Group

FinTechs on Ukrainian War

I. Introduction

With sanctions against Russia from the European Union’s member states and so called “Western States” and the exclusion for the SWIFT, on February 26, the Russian Central Bank claimed primed its SWIFT alternative, the Financial Message Transfer System  (FMTS), developed in the wake of the 2014 invasion of Crimea –  Furthermore, Russia has to rely on China’s more efficient Cross-border Interbank Payment System (CIPS) for international transactions. The FinTech global environment is in the spotlight along with the usage of the FinTech libertarian totem, cryptocurrencies form both sides.

II. The public actor

Ukraine has a pro FinTech tradition and is considered a pioneer country. Since the start of the conflict, the Ukrainian Government has adopted a plan on FinTech’s  and how it is possible to ameliorate lives of Ukrainians under attack and how to further hit the Russian economy. The Ukrainian plan is based on four - at least - elements: First one  is a cryptocurrency to fund the war UkraineDAO, a crypto collective, auctioned a non-fungible token (NFT) of a Ukrainian flag for $6.5m-worth of Ethereum.  The second one is that the State and NGO  are fundraising and creating donation official wallet addresses, in money and cryptocurrency.  The third one is the calls from government officials, e.g. Minister of Digital Transformation , to the industry to freeze exchanges for Russian elites. Finally, the fourth one is the hosting of conferences, workshops, supporting along with other governments and supranational entities initiatives of the Ukrainian Association of Fintech and Innovative Companies (UAFIC) with similar European Societies , in order to involve the world more to help Ukraine - a short of private diplomacy, e.g. the  Fintech Challenge for Ukraine that will take place online in June 2022.

III. The private actors

a. On Ukraine’s side

b. On neutrality

Not all members of the industry took a pro Ukrainian stance. Their stance was different however and each one of those industry members had their own reasons, other political, other economic etc. There are at least three different levels of neutrality: a) temporary neutrality, b) clear dogmatic neutrality and c) political neutrality. This categorization will be demonstrated with examples, in order to understand.

1. Speaking for temporary neutrality, it is clear that the case of the “Big Four” auditing companies, Deloitte, Ernst & Young, KPMG and PwC. In their press releases the Big Four, condemned Russia's aggression, announced sanctions and a corporate exodus  from Russia. It is believed that the Big Four have the 1.1.% of their global workforce in Russia, approximately 15.000 people.  Still, until the day of this report, no exodus has occurred and none of the Big Four are in a hurry, since there are a lot of obstacles e.g. Microsoft banned all software usage in Russia. Months of armed conflict have passed and even though all Big Four condemned the aggregation so far, they continue to function in the Russian economy.

2. In terms of clear dogmatic neutrality, the chase of cryptocurrency exchanges is the most dominant example. Of course cryptocurrency exchanges created fundraising platforms for humanitarian aid, but refused to outcast Russian users from their platforms and thus throwing them out of the private payment network of the cryptocurrency economy. One must consider that the fundamental idea behind cryptocurrencies was the creation of a currency and a financial system that exist outside of the mainstream, motivated by libertarian visions of the world. The world's largest crypto exchange Binance stated, “To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists”. Binance, on April 21, announced that all users with under 10.000 USD will continue to use the platform and added that Russian accounts with more than €10,000 in value that have open futures or derivatives positions will be given 90 days to close out their position. No new positions will be allowed for these affected accounts.  Kraken was more explicit , “Bitcoin is the embodiment of libertarian values, which strongly favor individualism and human rights”. It cited the law, saying it “cannot freeze the accounts of our Russian clients without a legal requirement to do so”.  

3. In terms of political neutrality, in the context of bilateral state relations. Maybe the most severe example is the case of Union Pay.  Unlike competitors of Union Pay, VISA, Mastercard and AmEx, Union Pay is currently not out of business in Russia. After, VISA and Mastercard outcasted the sanctioned Russian banks, numerous of them e.g. Sberbank turned to Union Pay, with them to reject expansion  of the current service provision in the Russian economy. Still Union Pay and Union Pay International are in no mood to prepare a company exodus from Russia, despite pressure.

IV. Conclusion and remarks

The industry is following the sanctions of the so-called “Western countries”, with the exclusion from the SWIFT to become the catalyst for major industry FinTechs to follow to Russian isolation. The use of cryptocurrencies is the most intriguing issue. This is the first war where cryptocurrencies play a major role. Ukraine is using them as a tool for defense. The Russian side’s use of cryptocurrencies is more complex. Russia is the world's third largest BitCoin miner and the Federation had not a friendly stance over cryptocurrencies.   The Central Bank of Russia, proposed a ban of cryptocurrencies yet the central government had a different, pro regulation stance.  The Russian people are very fond of using cryptocurrencies however. Would it be accurate to assume that Russia will use crypto in order to avoid the externalities of the sanctions? Probably it will try - if not doing so already, but would I consider it to be an effective instrument? There are at least four key issues, that might prove that going crypto would be ineffective in the end: a) limited liquidity in terms of ruble - cryptocurrency trading, b) anti-money laundering market structures, in terms that all major cryptocurrencies exchangers (wallets) must follow KYC/AML/CFT legislation in the EU and US and so they face severe supervisory control. The use of P2P, in terms of unhosted wallets (non- custodian) was insignificant according to KPMG  and too risky for users, making impossible to slide custodian wallets, c) the pseudonymity of dominant cryptocurrencies, in terms that every BitCoin, Ethereum the two most powerful cryptocurrencies are pseudonymous and not anonymous on their code, meaning that the are trackable (like market bills in a bank robbery). If a wallet can be linked to an entity or person, the actor can be identified, and d) the Russian Federation's inside dualism ending on not adopting a cryptocurrency friendly climate, in terms that so far Russia was not ready for a coherent cryptocurrency strategy for the conflict and unlike the use of an alternative SWIFT - already existing- it looks like in terms of cryptocurrency the go with the flow.

[1] A SWIFT equivalent that works only in Russia and some banks in Switzerland, Kazakhstan, Azerbaijan, Cuba, and Belarus.

[2] https://www.economist.com/the-economist-explains/2022/04/05/how-is-ukraine-using-crypto-to-fund-the-war

[3] https://twitter.com/ukraine/status/1497594592438497282

[4] Mykhalio Fedorov called  all major crypto exchanges to block addresses of Russian users https://twitter.com/fedorovmykhailo/status/1497922588491792386

[5] European Digital Finance Association, Bulgarian Fintech Association, Holland Fintech,

[6] Funded by the EU Commission, the  European Digital Finance Association (EDFA) in cooperation with the Ukrainian Association of Fintech and Innovative Companies (UAFIC) will organize the  Fintech Challenge for Ukraine, an international coding competition that will take place online in June 2022. Companies and individuals from all over the world are invited to develop technological solutions that will provide assistance to Ukrainians in their daily lives, enable the provision of everyday services to companies, and support the recovery of Ukraine. https://ec.europa.eu/info/events/finance-220516-fintech-challenge-ukraine_en

[7] A company with an Ukrainian co-founder Vlad Yatsenko. The current CEO Nikolay Storonsky, born in Russia to a Ukrainian father, released an open letter ( see https://blog.revolut.com/a-personal-letter-from-our-ceo/ ) categorically condemning the war, saying that “this war is wrong and totally abhorrent” and that “…not one more person should die in this needless conflict.”In a statement titled “The War on Ukraine: Our Response,” Revolut has affirmed its dedication to uphold and impose sanctions placed on Russia ( see https://blog.revolut.com/the-war-on-ukraine-our-response/ ).

[8] 29% of Russians https://www.statista.com/statistics/1056296/most-popular-online-payment-services-russia/

[9] https://www.bloomberg.com/news/articles/2022-03-02/rt-sputnik-content-officially-banned-across-european-union

[10] 20% of Russians supra 7

[11] https://about.fb.com/news/2022/02/metas-ongoing-efforts-regarding-russias-invasion-of-ukraine/

[12] https://www.wsj.com/articles/big-auditors-to-leave-russia-amid-invasion-of-ukraine-11646666419

[13] https://www.binance.com/en/support/announcement/4887e569afdf4b1e89e024371d3a49b9

[14] https://www.youtube.com/watch?v=JmZ8x-f5Els&ab_channel=KrakenBitcoinExchange

[15] Is a state-led financial services network operated by China's central bank, the People's Bank of China

[16] https://apnews.com/article/russia-ukraine-putin-business-global-trade-beijing-d3dbb062b20bf0a6ab49ec5f4a7ec1bb

[17] See the press release by the Governor of the National Bank of Ukraine https://bank.gov.ua/en/news/all/nbu-zaklikav-china-unionpay-ta-unionpay-international-viyti-z-platijnogo-rinku-rf

[18] https://www.cnbc.com/2022/01/20/russian-central-bank-proposes-banning-cryptocurrencies-crypto-mining.html

[19] https://www.protocol.com/bulletins/russia-crypto-ban-blowback



C. Gortsos (coordinator)


M. Cecilia del Barrio Arleo and Carlos Bosque Argachal


Claudia Collins and Belisa Miller

For additional information on EBI, please visit our website 

www.ebi-europa.eu or read our Brochure.

Supervisory Board of the European Banking Institute:

Dr. Thomas Gstädtner, President

Enrico Leone, Chancellor


The European Banking Institute based in Frankfurt is an international centre for banking studies resulting from the joint venture of Europe’s preeminent academic institutions which have decided to share and coordinate their commitments and structure their research activities in order to provide the highest quality legal, economic and accounting studies in the field of banking regulation, banking supervision and banking resolution in Europe. The European Banking Institute is structured to promote the dialogue between scholars, regulators, supervisors, industry representatives and advisors in relation to issues concerning the regulation and supervision of financial institutions and financial markets from a legal, economic and any other related viewpoint.

Academic Members: Universiteit van Amsterdam, University of Antwerp, University of Piraeus, Athens, Greece, Alma Mater Studiorum – Università di Bologna, Universität Bonn, Academia de Studii Economice din București (ASE), Trinity College Dublin, University of Edinburgh, Frankfurt School of Finance & Management, Goethe-Universität, Universiteit Gent, University of Helsinki, Universiteit Leiden, Leiden, KU Leuven Universtiy, Universidade Católica Portuguesa, Universidade de Lisboa, University of Ljubljana, Queen Mary University of London, Université du Luxembourg, Universidad Autónoma Madrid, Universidad Carlos III de Madrid, Universidad Complutense, Madrid, Spain, Johannes Gutenberg University Mainz, University of Malta, Università Cattolica del Sacro Cuore, University of Cyprus, Radboud Universiteit, BI Norwegian Business School, Université Panthéon - Sorbonne (Paris 1), Université Panthéon-Assas (Paris 2), University of Stockholm, University of Tartu, University of Vienna, University of Wrocław, Universität Zürich.

Supporting Members: European Banking Federation (EBF), European Savings and Retail Banking Group (ESBG), Bundesverband deutscher Banken / Association of German Banks, Ελληνική Ένωση Τραπεζών / Hellenic Bank Association, Associazione Bancaria Italiana / Italian Banking Association, Asociaţia Română a Băncilor / Romanian Banking Association, Asociación Española de Banca / Spanish Banking Association, Nederlandse Vereniging van Banken / Dutch Banking Association, Fédération Nationale des Caisses d’Epargne / French association of savings banks, Deutscher Sparkassen- und Giroverband / German association of savings banks, Confederación Española de Cajas de Ahorros / Spanish confederation of savings banks, Sparbankernas Riksförbund / Swedish association of savings banks, Cleary Gottlieb Steen & Hamilton LLP.

Institutional Member: Federal State of Hessen

This e-mail has been sent to claudia.collins@ebi-europa.eu, click here to unsubscribe.