(Bloomberg) -- German authorities are stepping up scrutiny of VTB Bank PJSC’s European operations as they seek to avoid triggering the deposit insurance scheme that could represent a multi-billion-dollar upfront hit to other banks in the nation.
The Russian lender, with European operations headquartered in Frankfurt, is being monitored by the German central bank, the financial markets regulator and deposit insurance bodies, people with knowledge of the matter said. Authorities are trying to find a solution that avoids an automatic triggering of payouts to clients, while still bracing for a potential wind-down, said the people, who asked to remain anonymous as the matter is private.
Regulators want to win more time for VTB in Europe to avoid upfront costs for Germany’s other banks, said the people. Lenders are still reeling from the collapse of Greensill Bank AG last year, which drained the guarantee fund’s reserves and generated additional expenses for lenders including Deutsche Bank AG and ING Groep NV to replenish the fund.
VTB Bank Europe SE’s 7.95 billion euros of assets at the end of September make it a comparatively small bank within the region. About 1.64 billion euros of that was in cash and short-term funds, while its liabilities include 4.35 billion euros of customer deposits, company filings show.
Sberbank PJSC’s European business unraveled last week when the Single Resolution Board, which handles the failure of large European lenders, said that the Austrian unit of Russia’s biggest bank will be liquidated under local insolvency procedures. That’s going to put Austrian banks on the hook for compensation to depositors of near to $1 billion.
BaFin, the German regulator which takes the decision on whether to trigger payouts at smaller banks, is in close contact with VTB’s local unit, according to a spokeswoman for the watchdog. She reiterated that the lender isn’t accepting any new clients at the moment but existing ones that don’t fall under sanctions can access their deposits.
A spokeswoman for VTB said the European unit “continues to operate but is looking at ways to simplify its activities.”
Sberbank Europe AG had 13.6 billion euros of assets, which is more than at VTB. That normally would not be enough to qualify as a “significant” bank, but Sberbank Europe was given that status because of the cross-border nature of its business.
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