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Beware of wartime fake news triggering a run, EU banks told

European Union flags flutter outside the European Commission headquarters in Brussels, Belgium, April 10, 2019. REUTERS/Yves Herman

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LONDON, April 1 (Reuters) – Banks must beware of fake news that could lead to a run on their deposits, the European Union banking watchdog said Friday in a warning about possible consequences of the war in Ukraine.

“As market sentiment remains highly volatile and driven by news flows, banks’ liquidity levels may become vulnerable due to the dissemination of inaccurate information,” the European Banking Authority said in its latest “risk dashboard,” which focused on exposures to Russia and Ukraine.

“Such campaigns that spread inaccurate information can lead to deposit outflows from targeted banks,” the EBA said.

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EBA said bloc banks’ exposure to Russia is too low to threaten financial stability, but the economic fallout from the war in Ukraine and cyber-attacks could hurt lenders’ profitability.

EU banks had a total of €76 billion ($84 billion) in Russia and €11 billion in Ukraine in the fourth quarter of 2021, mainly from Austrian, French and Italian lenders.

Only Austrian and Hungarian banks reported more than 2% of their aggregate exposure, such as in loans and advances, to Russia and Ukraine, the EBA said.

EBA Russia Graphic

“Based on the EBA’s initial assessment, direct exposures to Russia, Belarus and Ukraine are limited, but second-round effects may be more important from a financial stability perspective,” it said.

Second-round effects include direct economic consequences of the war, such as the fiscal impact, the impact of sanctions, increased risks from cyber-attacks and the long-term impact on supply chains in the global economy, the EBA said.

Higher inflation and lower growth could erode lending and negate the benefits of rising interest rates for banks, the EBA said.

EU banks still had generally strong core capital levels of 15.4% at the end of the fourth quarter of 2021, the EBA said.

EBA Russia Graphic 2

($1 = 0.9047 euros)

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Reporting by Huw Jones; Editing by Catherine Evans

Our Standards: The Thomson Reuters Trust Principles.

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