ABA Banking Journal - June 2012 - (Page 8)

the economy | by RObeRT MORGAn U.S. banks: little exposure to Europe Europe’s debt crisis has had a large impact on the European banks, but its direct impact on U.S. institutions 6% will be much more limited. Italy In April, the European Cen5% tral Bank (ECB) calmed markets with two issuances of cheap loans 4% to eurozone banks. Under LongTerm Refinancing Operations, ECB 3% Spain issued unlimited tenders of threeyear loans at a 1% interest rate to 2% banks posting good collateral. ECB France provided $1.32 trillion in liquid1% ity to the region’s banks—enough to pre-fund all maturing bank debt 0% Oct Nov Dec Jan Feb Mar Apr May Sep through 2013. This ensures that Source: ABA Analysis there will be no liquidity crisis in the next two years. The markets, however, soon realized the underlying problems had not been addressed and will likely contina referendum on the issue. ue to deteriorate. After a few weeks of calm, the region’s debt crisis returned, U.S. banks have managed expowith yields on Spanish and Italian debt quickly returning to peak crisis levels sures to Europe relatively well. U.S. as of late May. banks have only $161.3 billion in In a further step to calm the markets, European leaders recently agreed to exposure to the debt of European boost the size of their “firewall,” the upcoming European Stability Mechanations. Of this amount, only $19.6 nism (ESM). An additional $265 billion was added to the $660 billion fund. billion is to the stressed sovereigns. The additional $265 billion will cover commitments already made by the U.S. banks have more overall expoESM’s predecessor and allow the fund to have a full lending capacity of sure to European banks—$247.1 $660 billion. This move also prompted the International Monetary Fund to billion. Most of that exposure, roughly double its resources by adding $430 billion to handle any crisis. however, is to the stronger econoDespite the recent progress, both within Europe and externally, yields on mies; German and French banks peripheral debt continue to rise. In particular, the yield on ten-year Spanalone account for $161.1 billion ish government debt ratcheted back up to 6%. The primary concern is the of it. Because of this, it is unlikely national economies will not grow enough to service the debt. The austerthat the broader U.S. economy will ity approach that has been used so far has cut growth severely, increasing be hurt by European woes. It is, the interest burden relative to GDP. The recent election of socialist French of course, difficult to determine if President François Hollande has changed the debate within Europe to focus specific American banks may have on growth as well as austerity. Hollande and Italian Prime Minister Mario exposures to such areas. n Monti have called for a “growth pact,” in addition to the proposed fiscal controls. Without growth, few believe Europe’s debt to be sustainable. Robert Morgan is research Parliamentary elections in Greece raised doubts as to the country’s commanager in ABA’s Office of the mitment to remaining within the euro. New elections will essentially serve as Chief Economist. Peripheral yields soar 8 | ABA BANKING JOURNAL | june 2012 Spread over German bunds

Table of Contents for the Digital Edition of ABA Banking Journal - June 2012

ABA Banking Journal - June 2012
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
Picture This
ABA Community Banking: A purpose-built bank
Pass the Aspirin
Tech Topics
Science of the complaint
Top-performing community banks
Compliance Clinic
ABA Resources
Legal Issues
First Person

ABA Banking Journal - June 2012

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