Major U.S. Banks At Risk If European Debt Crisis Spreads!

• No one really knows the risk amount US banks are exposed to, in the event of a Eurozone sovereign debt meltdown. This is because of the opague and unregulated OTC derivatives market. In this financial casino, many banks, corporations and individuals have taken bets (CDS – insurance against default, Credit Default Swap) from American banks and financial institutions. It is just One Big Fraudulent Casino! Even though a person does not have any debt exposure to Greece, he can purchase a CDS to bet that Greece will default and get rewarded (naked CDS). It is crazy!
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  Major U.S. Banks At Risk If European Debt Crisis Spreads
  by Bonnie Kavoussi, http://www.huffingtonpost.com/business/
  If European politicians are unable to contain their sovereign debt problems, Wall Street could be on the brink of another financial crisis, according to economists.
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  Although U.S. banks have limited their direct exposure to Greece, they have loaned hundreds of billions of dollars to European banks and governments that may not be able to pay them back, according to the Bank for International Settlements. If some European governments and banks are forced to default on at least part of their debt, American banks could lose a significant amount of money on that account alone.
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  The resulting panic from investors could compound the losses. Short-term borrowing costs would spike, bank stock prices would plummet and investors could demand their money from banks, several economists say. In a repeat of the liquidity crisis of 2008, some U.S. banks could run out of the money necessary to fund their day-to-day operations.
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  “We’ve seen this already,” said Jay Bryson, global economist at Wells Fargo Securities. “Some sort of financial crisis in Europe would be enough to finally push the United States economy back into a recession.”
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  Some predict that a European financial crisis would spread quickly to U.S. shores. The pain would not come directly from government defaults; U.S. banks have loaned just $36.2 billion to the five European governments that are in danger of defaulting: Greece, Ireland, Portugal, Spain and Italy. But U.S. banks have also loaned $60.6 billion to banks in those five countries, and $275.8 billion to banks in Germany and France, according to data from the Bank for International Settlements.
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  A string of sovereign debt defaults would endanger the survival of major European banks, including those in France and Germany, which hold a large amount of troubled sovereign debt on their books, some economists note. According to Bryson, French banks’ exposure to the five European countries that are in danger of defaulting amounts to 25 percent of France’s gross domestic product, and the exposure of German banks to those countries is worth 15 percent of Germany’s total output.
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  Sudden European government defaults could spur panicked investors to demand their deposits back from European banks, possibly forcing those banks to run out of money and declare bankruptcy. Several economists say that even if the European Central Bank steps in to save major European banks, some may partially default on U.S. bank loans to stay afloat — an outcome that would cause major losses for U.S. banks and put them at risk of a bank run, when investors demand their deposits back all at the same time.
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  U.S. banks could face a financial crisis even before the crisis in Europe gets that far. Bryson outlined three scenarios in which a financial crisis could spread from Europe to the United States. A full-fledged financial crisis would ensue if “the crisis goes viral before the backstops are in place,” he said.
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  First, the Greek government could cave in to protestors and stop agreeing to Europe’s demands for additional budget cuts. In that case, the eurozone would stop lending to Greece and Greece would run out of cash and be forced to declare bankruptcy. The shock of a sudden Greek default could cause investors to demand higher interest rates from other troubled European governments, which could subsequently default. European banks that have loaned to those countries could run out of money and be at risk of defaulting on loans from U.S. banks, which could face higher borrowing costs and bank runs of their own.
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  …. for the full article click here!

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