Federal and state regulators, signalling their growing worry that Europe's debt crisis could spill into the US banking system, are intensifying their scrutiny of the US arms of Europe's biggest banks, according to people familiar with the matter.
Officials at the New York Fed "are very concerned" about European banks facing funding difficulties in the US, said a senior executive at a major European bank who has participated in the talks. Regulators are seeking to avoid a repeat of the 2008 financial crisis, when the global financial system began to seize up. This time the worry is that the eurozone debt crisis could eventually hinder the ability of European banks to fund loans and meet other financial obligations in the US. While signs of stress are bubbling up, the problems aren't yet approaching the severity of past crises.
Fed officials recently have held meetings with US-based executives from top European banks to discuss their funding positions, according to the people familiar with the matter. Officials also are in contact with regulators in the countries where the European banks are headquartered. Anxiety about European banks' US funding comes amid broader concerns about whether Europe's struggling banks will be able to refinance maturing debt in coming years. Investors, wary of many European banks' holdings of debt issued by troubled eurozone governments, are shunning large swathes of the sector. While top European banks already have satisfied about 90 per cent of their funding needs for 2011, they still need to raise a total of roughly €80 billion ($115 billion) by the end of the year, according to Morgan Stanley.
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