* ECB debates how to implement sanctions against Russia
* Unclear how sanctions affect ECB market operations
* ECB Governing Council to discuss issue on Thursday
By Eva Taylor
FRANKFURT, Aug 6 Major Russian banks active in
the euro zone could face caps or even exclusion from borrowing
from the European Central Bank as it examines how European
sanctions against Moscow affect its operations.
Euro zone banks use the ECB to manage their day-to-day
liquidity flows and relied on the central bank almost
exclusively when interbank markets dried up at the height of the
global financial crisis as trust among banks evaporated.
Being able to tap central bank refinancing operations is
crucial for banks, especially when others may not be willing to
lend to them. The ECB's decision will therefore be decisive for
the sanctioned Russian banks' European business operations.
"The intention is clear: the EU subsidiaries in their
legitimate business should not be negatively impacted. That is
the thrust of the regulation and I am not hearing many people
say otherwise actually. We'll see if the ECB goes beyond that,"
said a source familiar with the discussions.
Among the banks in question are the Austrian arms of
Russia's two largest banks, Sberbank and VTB Bank, which the ECB
thought so significant it decided to supervise them directly
when it takes on banking oversight in the euro zone in November.
Sberbank is run by German Gref, an ally of Russian President
Vladimir Putin, and VTB is majority-owned by Russia. Sberbank's
Austrian unit declined to comment when contacted by Reuters for
VTB Bank referred to a statement in which it said neither
its Austrian unit nor its subsidiaries in Germany and France
were targeted by the sanctions. It added that their operations
The ECB could decide to freeze transactions between the euro
zone subsidiaries of the affected Russian banks and the euro
system, introduce caps on how much funding they can take, or
leave things as they are and monitor capital flows to ensure
funds are not being passed on to the Russian parent companies.
"The ECB will take all necessary steps to prevent
circumvention of the EU restrictive measures, in the context of
its monetary policy operations," an ECB spokesperson said.
Russia is Austria's ninth-biggest trading partner.
Positioned on the edge of the Iron Curtain that divided Europe
until 1989, Austria was a gateway to the eastern bloc and became
a base for doing business with the former Communist countries.
Even if mainly a legal issue for the ECB, the development
shows how difficult it has become for the central bank to keep
out of politics given the depth and complexity of financial
interconnections and at a time when it is taking on more
responsibility to bring Europe back to growth.
The policy-making Governing Council is set to discuss the
issue informally on Wednesday and then formally at its policy
meeting on Thursday. Whether it will take a decision then is not
clear yet, several people with knowledge of the debate said.
At the heart of the problem is the legal text of the
sanctions the European Union released last week against Russia
for its role in Ukraine's political crisis.
The sanctions say among other things that EU nationals and
companies can no longer buy or sell new bonds, equity or other
financial instruments with a maturity of more than 90 days
issued by major state-owned Russian banks or those acting on
The ECB has to comply with the new legislation agreed by
European countries, but the legal text does not clearly define
which transactions are restricted. ECB experts are working on
The ECB held a conference call on Friday. So far, euro zone
subsidiaries and branches of the Russian banks in question have
remained eligible counterparties in the euro system, but the ECB
is keeping an eye on their capital flows.
"What we also don't want is for these banks to become
increasingly dependent on the ECB," the source said. "We do see
that in the markets some counterparties are cutting down their
exposure limits, also to the subsidiaries.
"As far as we can tell, so far they haven't had any actual
constraints on their business - but who knows how this will all
(Additional reporting by Michael Shields in Vienna; Editing by