U.S. Banks’ Ultimate Risk Exposure in Europe

This Thursday, we'll be publishing a Deep Dive about U.S. exposure to the economic and financial crisis that is emerging in Europe. This chart gives a sense of what U.S. banks’ direct exposure will be as the situation in Europe worsens.

The first thing to note about this chart is where Italy ranks. We have been tracking the issue of non-performing loans in Italy since the beginning of the year. In December, we forecast that this issue would set off a crisis within the EU. The U.S. is much less exposed to this problem than countries like France or Germany. The ultimate risk basis as calculated by the Bank for International Settlements puts the total figure for U.S. banks’ exposure to Italy at $47.7 billion. That is a moderate – not catastrophic – level of exposure.

The second thing to note is that the U.S. is quite exposed to the United Kingdom, and to a lesser extent France and Germany. France and Germany in particular, as we will lay out in our upcoming report, are far more exposed to the problems in Italy than the U.S. is. So while direct exposure to Italy may not be a serious issue for U.S. banks, the ramifications of an Italian banking crisis will be felt by U.S. banks because of their exposure to other major Western European banks.

The last thing to note is that this data by itself is insufficient to provide a complete view of the situation. It does not, for example, include off-balance sheet items, like credit default swaps or derivatives contracts. For more on that, you’ll have to read our report coming out on Thursday. In the interim, however, this is a good place to start considering what the ramifications of the financial situation in Europe will be on the U.S. economy.

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