“WASHINGTON – Federal Reserve Chairman Ben Bernanke says the threats from Europe’s debt crisis have eased, but U.S. money market funds remain exposed to risky European assets.
In testimony prepared for a congressional hearing Wednesday, Bernanke noted developments that have minimized the danger. He pointed to bailout support that European leaders provided in exchange for deep budget cuts by the Greek government and he highlighted the agreement by private creditors to reduce Greece’s debt.
But he said Europe must take further steps, including strengthening its banking system even more and making “a significant expansion of financial backstops” to guard against troubles in one country spilling over to other nations.
“Europe’s financial and economic situation remains difficult, and it is critical that the European leaders follow through on their policy commitments to ensure a lasting stabilization,” Bernanke said in remarks prepared for the House Committee on Oversight and Government Reform.
While U.S. financial institutions have reduced their exposure to Europe, Bernanke said roughly 35% of assets in U.S. prime money market funds are in European holdings.
“U.S. financial firms and money market funds have had time to adjust their exposures and hedge their risks to some degree … but the risks of contagion remain a concern both for these institutions and their supervisors and regulators,” Bernanke said.
Bernanke said if Europe took a severe turn for the worse, the U.S. financial sector would have to contend not only with problems stemming from its direct exposure to European loans and investments but also with broader market movements, including declines in global stock prices, increased credit costs and reduced availability of funding….”
If you enjoy the content at iBankCoin, please follow us on Twitter
