NEW YORK -(Dow Jones)- U.S. money-market funds' significant exposure to European banks underscores the threat that the risk of a Greek sovereign default poses to global financial markets.
As of February, U.S. money-market funds' holdings of short-term securities sold by European banks--including commercial paper, asset-backed securities and certificates of deposit--stood at 44.3% of their total assets, according to a recent research report from Fitch. The ratings agency said it will release updated data in several weeks.
If those funds were to sell some of their holdings, they could pull the plug on an important channel of short-term funding for European banks and pre-empt a crisis across the euro zone--even without Greece having an actual default, the event most feared by European banks.
Alternatively, the funds could suffer big losses from their investments if the Greek debt crisis worsened--either with an actual default, or a restructuring that undermines banks' balance sheets. The deterioration in the banks' financial position would worsen again if contagion were to spread to other countries within the euro zone and if their bonds were also to come under selling pressure.
"It is easy to see therefore that the risk of a Greek default has systemic implications that go way beyond the euro area," wrote Pater Tenebrarum, an independent analyst who runs the Acting Man financial website. He put the figure for U.S. money-market exposure to European Bank assets at 42%.
The European Central Bank also is exposed to this tight relationship between U.S. funds and European banks. The ECB has accepted some 480 billion euros ($689 billion) in asset-backed securities, and it has an additional EUR360 billion in "non-marketable financial instruments" on its books--similar assets to those held by the U.S. money-market funds.
That's up sharply from EUR36 billion in 2005, according to calculations by German news magazine Der Spiegel based on data from the European Central Bank.
It is one reason why many ECB officials are opposed to proposals by the German government that private investors share the bailout cost via a voluntary restructuring on Greek government debt.
Source: http://online.wsj.com
As of February, U.S. money-market funds' holdings of short-term securities sold by European banks--including commercial paper, asset-backed securities and certificates of deposit--stood at 44.3% of their total assets, according to a recent research report from Fitch. The ratings agency said it will release updated data in several weeks.
If those funds were to sell some of their holdings, they could pull the plug on an important channel of short-term funding for European banks and pre-empt a crisis across the euro zone--even without Greece having an actual default, the event most feared by European banks.
Alternatively, the funds could suffer big losses from their investments if the Greek debt crisis worsened--either with an actual default, or a restructuring that undermines banks' balance sheets. The deterioration in the banks' financial position would worsen again if contagion were to spread to other countries within the euro zone and if their bonds were also to come under selling pressure.
"It is easy to see therefore that the risk of a Greek default has systemic implications that go way beyond the euro area," wrote Pater Tenebrarum, an independent analyst who runs the Acting Man financial website. He put the figure for U.S. money-market exposure to European Bank assets at 42%.
The European Central Bank also is exposed to this tight relationship between U.S. funds and European banks. The ECB has accepted some 480 billion euros ($689 billion) in asset-backed securities, and it has an additional EUR360 billion in "non-marketable financial instruments" on its books--similar assets to those held by the U.S. money-market funds.
That's up sharply from EUR36 billion in 2005, according to calculations by German news magazine Der Spiegel based on data from the European Central Bank.
It is one reason why many ECB officials are opposed to proposals by the German government that private investors share the bailout cost via a voluntary restructuring on Greek government debt.
Source: http://online.wsj.com
No comments:
Post a Comment