European arm of Russia's Sberbank faces closure after savers demand money

The European arm of Sberbank, Russia's biggest lender, faces failure, the European Central Bank (ECB) warned on Monday, after a run on its deposits sparked by the backlash from Russia's invasion of Ukraine.

Western allies have taken unprecedented steps to isolate Russia's economy and financial system, including sanctioning its central bank and excluding some of its lenders from the SWIFT messaging system, used for trillions' of dollars of transactions.

Sberbank Europe and two other subsidiaries were set to fail, after "significant deposit outflows" linked to "geopolitical tensions", according to the ECB. Austria's Financial Market Authority imposed a moratorium on Sberbank Europe, which is based in the country. 

Separately, Deutsche Boerse, the German stock exchange operator, said that it was suspending from trading a number of securities from Russian issuers with immediate effect. The list includes Sberbank.

"We've triggered a run on this kind of bank," said Hans-Peter Burghof, a professor at the University of Hohenheim.

Western banks and their lawyers are scrambling to assess the impact of the wave of sanctions, which prompted Russia's central bank to more than double its main interest rate on Monday and introduce some capital controls to try and stabilize the rouble.

Russia's central bank stands ready to support the nation's banking sector following the high demand for cash, its governor Elvira Nabiullina said. 

Shares of leading European banks sank with the European banking sector (.SX7P) down 5.4%, steeper than a 1.9% fall for the Euro Stoxx index.

The market turmoil came as ceasefire talks between Russian and Ukrainian officials began on the Belarusian border on Monday and as Russia faced deepening economic isolation four days after invading Ukraine. Russia calls its actions in Ukraine a "special operation".

Also read: Ukraine crisis: US blocks transactions with Russia's central bank

Also read: Analysis: SWIFT block deals hard blow to Russia; leaves room to tighten