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Fed investigates health of European banks

Marketplace Staff Aug 18, 2011

Fed investigates health of European banks

Marketplace Staff Aug 18, 2011

Jeremy Hobson: We’ve been told over and over again that the U.S. banking system is not very exposed to European debt. But what about European banks that operate in the United States, like Societe Generale or Deutsche Bank? The Wall Street Journal reports this morning that U.S. banking regulators are pushing to make sure the U.S. divisions of Europe’s biggest banks are keeping enough money in their vaults.

Our senior business correspondent Bob Moon is here live with more on this. Good morning, Bob.

Bob Moon: Good morning.

Hobson: Well, what exactly are regulators looking into?

Moon: Well, our central bank is the top regulator here for these European banks that have a U.S. presence. And the Fed reportedly has been asking for more information about their ability to fund themselves on a day-to-day basis. The Journal also says the Fed has been pushing these banks to turn their U.S. operations into self-financed organizations, to keep enough money on hand here so they’re better insulated from any problems their parent companies might run into.

Hobson: Well what do we know alread about the exposure to European debt here in the United States?

Moon: In recent months, Federal Reserve data shows foreign banks have seen their available funding here in the U.S. fluctuate wildly. I spoke to Daniel Martin of the Economist Intelligence Unit, and he says the problem is the exposure of their parent firms to all that bad European debt we’ve been hearing about for many months now.

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?

Hobson: It seems like a good question, Bob. And it seems like it makes sense that the U.S. regulators would want to look into these European banks operating here in the U.S.

Moon: Oh it makes all the sense in the world, but this is an extremely sensitive problem. On the one hand, a story like this could be floated to help reassure investors that the Fed is on the case here. But as economist Daniel Martin told me, it could also have unwanted repercussions.

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.

And to give you an idea just how sensitive this is, I telephoned one banking analyst in London today who flatly begged off commenting about this story, out of fear he might say something wrong and somehow make mattesr worse.

Hobson: Marketplace Senior Business Correspondent Bob Moon, thanks.

Moon: Thanks.

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