Wall Street Banks Prep for Grim China Scenarios Over Taiwan

Global financial firms, still smarting from multi-billion dollar losses in Russia, are now reassessing the risks of doing business in Greater China after an escalation of tensions over Taiwan.

Lenders including Societe Generale SA, JPMorgan Chase & Co., UBS Group AG have asked their staff to review contingency plans in the past few months to manage exposures, according to people familiar with the matter. Global insurers, meanwhile, are backing away from writing new policies to cover firms investing in China and Taiwan, and costs for political risk coverage have soared more than 60% since Russia’s invasion of Ukraine.

“Political risk around potential US sanctions and the likelihood that China would respond by restricting capital flow has kept risk managers busy,” said Mark Williams, a professor at Boston University. “A sanctions war would significantly increase the cost of doing business and push US banks to rethink their China strategy.”

Heated rhetoric between Beijing and Washington over Taiwan has unsettled firms, coming just months after Russia’s war unexpectedly forced the world’s largest lenders to exit businesses and stop serving ultra-wealthy clients. US lawmakers last week ramped up pressure on banks to answer questions on whether they would withdraw from China if it invaded Taiwan.

While financial services executives who spoke on the condition of anonymity said they view the risk of armed conflict in North Asia as low, they see tit-for-tat sanctions between the US and China that disrupt the flow of finance and trade as ever more likely.