By Pete Schroeder and Michelle Price

WASHINGTON (Reuters) – Russia’s invasion of Ukraine has heightened financial stability risks “on multiple fronts” and will test the resilience of the global financial system at a time of rising interest rates. sharply, warned the International Monetary Fund (IMF) in its press release. semi-annual report on global financial stability on Tuesday.

Although there have been no global systemic financial events so far, there are several channels through which Ukraine’s unrest could be amplified through the system, the IMF warned.

These include direct and indirect bank and non-bank exposures to Russia; commodity market disruptions and increased counterparty risk; low market liquidity and funding stress; cyberattacks and the acceleration of the use of crypto assets, he said.

“While the financial system has proven resilient to recent shocks, future shocks could be more harmful,” the IMF said.

“A sudden repricing of risk resulting from an escalation of war and associated escalation of sanctions may expose and interact with some of the vulnerabilities accumulated during the pandemic, driving asset prices sharply lower.”

Global banks’ exposure to Russia and Ukraine is relatively modest and limited to a handful of European lenders. However, the degree of indirect exposure of financial companies to the conflict is unclear, as disclosures are patchy and inconsistent.

Indirect exposures from activities such as investment banking and wealth management, off-balance sheet supply chain or commodity finance, derivatives and contingent liabilities could be “significant and surprise investors when they are revealed, resulting in a sharp increase in counterparty risk,” the report said.

Derivatives are a concern, said Tobias Adrian, director of the IMF’s Monetary and Capital Markets Department, which publishes the report.

“They’re very opaque and it’s hard to know how much hidden leverage there is,” Adrian said. The report flagged foreign exchange swaps and futures as an area that could leave banks unhedged if trades were to be rolled back.

“The other concern is private markets, private debt, private equity. There could be exposures that we don’t see.”

The market is already reeling from sweeping Western sanctions that have cut funding and pushed up the price of many commodities, including oil.

The report also indicates that the handful of concessionary banks that provide commodity financing have the potential to create disruption in the commodity market.

Adrian noted that around five commodity trading houses and five dealer banks dominate the market, creating concentration risk. “We are somewhat worried about commodity markets,” he added.