N.Y. Fed keeps watchful eye on European banks

The Federal Reserve Bank of New York seal

STEVE CHIOTAKIS: Today's Wall Street Journal reports U.S. banking regulators are pushing to make sure some of Europe's biggest banks keep enough money in the vaults of their U.S. divisions. It's in an effort to keep the European debt crisis on that side of the Atlantic.

Here's Marketplace's senior business correspondent Bob Moon.


BOB MOON: European banks that have a U.S. presence answer to the Federal Reserve here. And they're facing a simple but serious question: Is there enough money on hand to fund day-to-day operations in a crisis? They're reportedly also under pressure from the central bank to essentially turn their U.S. units into self-financed organizations. Big European banks that do business here have lately had a tougher time finding cash.

Researcher Daniel Martin of the Economist Intelligence Unit blames fear of those risky loans their parent firms made to European governments.

DANIEL MARTIN: When banks become uncertain about other banks, in terms of what kind of things they're holding, they become reluctant to lend them money. Do you really want to lend a bank money when they've got things like that on their books?

The could result in a freeze-up similar to the one that crippled the global financial system three years ago, which is not what financial units want to hear.

MARTIN: A news story like this obviously isn't good, especially since it was banks that tended to be hardest hit by that crash last week.

A repeat of which is exactly what the Fed hopes to avoid, provided the mere mention of these precautionary moves doesn't spook investors even more.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...