Implications of the EU Sanctions for the Resilience of the Russian Financial System under the Current Geopolitical Environment

Abstract

The military invasion of Ukraine by the Russian Federation turned into Europe's most prominent military conflict since World War II, severely modifying the economic and financial relations between the European Union (EU) and the Russian Federation. Since the beginning of the Russian aggression, the EU has imposed a large number of sanctions against the Russian Federation, which aimed at limiting Russian resources to finance the war and restricting its access to European financial markets. In this context, the paper aims to investigate the impact of the EU sanctions on the Russian financial system by assessing the banking system’s resilience to imposed restrictions. The findings highlight that, in the initial phase, the Russian financial system has been significantly disrupted by the EU sanctions, facing a collapse of the rouble, the most significant drop in the history of Moscow's stock market, a banking liquidity crisis, but also a contraction in lending and in the interest rate spread. In a later phase, due to largescale countermeasures taken by the Russian authorities and the Bank of Russia, it has been stabilized, reflecting its high level of resilience to risks.

Keywords

• eu sanctions
• russian federation
• banking system
• banking liquidity crisis
• countermeasures