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Notes on European and USA Bank Exposures

by Elliott Morss

There is a lot of talk about bank contagion and exposures resulting from the Eurozone crisis. There is much less talk about the high unemployment rates and other hardships being forced on the weaker Eurozone countries by the ECB/IMF cadré. But for now, let’s focus on bank contagion and exposure. What do we know?

Data from the latest quarterly report of the Bank for International Settlements on “foreign claims” are presented in Table 1. The creditor countries are presented in the left hand column. So for example, France’s foreign claim total for the five listed debtor countries is $681 billion.

Source: Bank for International Settlements

But what do these numbers really mean? And how seriously would defaults impact the banks in the creditor nations. To answer this question, it would be useful to have bank deposit totals for the creditor nations. Why? Because we that for any given deposit amount, banks are required to hold a certain percent of assets. Any significant reduction in assets (such as would result from a default) can create problems.

In the following tables, I use deposit totals of Euro area residents from the European Central Bank for Euro area countries. For the UK, I use Bank of England deposits data, and for the US, I use FDIC deposit data. Table 2 provides data on foreign claims percent share of deposits for all creditor countries. These figures are indicative of the reserve requirement hit the banks of each country would take if any debtor country announced a 100% default.

Along with “Foreign Claims”, the Bank for International Statistics provides one other data set in Table 9E – “Other Potential Exposures”. This ominous sounding entry includes derivatives contracts, guarantees extended, and credit commitments. Table 3 indicates what happens to the deposit percentage when Other Potential Exposures are added to Foreign Claims.

It is notable how much the US numbers jump when Other Potential Exposures are added.

Disclaimer: I offer no interpretation of these numbers.

Table 1. – Foreign Claims (in mil. US$)

Debtor

Creditor

Greece

Ireland

Italy

Portugal

Spain

Total

France

55,739

32,015

416,373

25,662

150,892

680,681

Germany

21,372

110,509

161,757

35,852

177,465

506,955

Italy

3,728

14,843

-

3,932

29,972

52,475

Spain

1,155

9,212

39,765

88,483

-

138,615

UK

12,642

140,850

73,720

25,439

100,880

353,531

US

8,355

53,588

46,899

5,250

66,773

180,865

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