Magazine article American Banker

Turmoil in Europe Spares Foreign Lending in U.S

Magazine article American Banker

Turmoil in Europe Spares Foreign Lending in U.S

Article excerpt

Byline: Harry Terris

After two years of grinding crisis in Europe, lending by foreign institutions in the U.S. appears unfazed.

Many institutions on the Continent have been cut off by private funding markets, and many others have had access sharply curtailed, producing a radical reconfiguration of the liability profile of their operations in this country.

On the asset side of the balance sheet, however, the most pronounced fluctuations have been in cash holdings, the majority of which appears to be parked at the Federal Reserve, earning a yield of 25 basis points.

Lending, meanwhile, has been relatively stable, dipping through the recession and recovering steadily since early 2010.

U.S. operations of foreign institutions (domestic branches and agencies of foreign banks and Edge Act corporations) have traditionally relied heavily on wholesale, large-balance time deposits, which funded roughly 50% to 85% of their assets from 2008 to 2010. (The data here excludes chartered banks owned by foreign parents, like Compass Bank, an Alabama unit of Spainas Banco Bilbao Vizcaya Argentaria.)

Such deposits have withered as the sovereign debt and banking crisis in Europe has boiled on, plummeting 30% from May 2011 to $720 billion in early June. In their stead, parent companies have been funneling in cash from offices outside the country. Such amounts totaled $272 billion in early June, whereas the U.S. operations of foreign institutions had exported $275 billion to $450 billion to offices outside the country during calmer periods in late 2009 and 2010. …

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