Magazine article American Banker

European Banks Lending Here

Magazine article American Banker

European Banks Lending Here

Article excerpt

Byline: Harry Terris

Europe tops nearly everyoneas list of threats to the global economy, and the European Central Bank has finally turned its bazooka on the festering crisis by providing $640 billion of three-year funding to the Continentas banks.

Yet through it all, lending by European banksa operations in the U.S. has continued apace.

Lending by foreign institutions in this country has increased almost 15% since midyear a when deposits began to stream out of the entities a to a seasonally adjusted $662 billion at Dec. 7, according to the most recent data published by the Federal Reserve (see the first chart). That includes a 3% increase in commercial and industrial loans, to $247 billion.

The outflow of deposits, including a 15% drop in large time deposits a the foreign entitiesa largest single source of funding a to $776 billion, did cause a 19% contraction in assets to $1.7 trillion. But most of that was accomplished by running down holdings of cash, which appears to have largely been deployed in a thin-margin arbitrage play on interest paid on excess balances booked at the Federal Reserve. (The dollars that fled European banks have landed, sometimes painfully, at U.S. banks, which generally have little appetite for additional liquidity.)

The relative stability in business lending by foreign-related institutions a an important source of financing for trade and infrastructure a is comforting, but hardly the whole picture. …

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