Fed Survey Finds Limited Exposure to Europe for U.S. Banks

WASHINGTON — While U.S. banks have been lending to companies with exposure to Europe's economic problems, their risk appears relatively modest, according to a survey released Monday by the Federal Reserve Board.

The central bank's Senior Loan Officer Opinion Survey found that nearly one-half of domestic bank respondents, mostly larger institutions, made loans or extended lines of credit to European banks to their affiliates in the third quarter.

Roughly three-fifths of U.S. firms also made loans or extended credit to nonfinancial firms with operations in the U.S. that had significant exposure to Europe. Those loans, however, constituted a small portion — less than 5% — of outstanding commercial and industrial loans at most U.S. banks. Of the 37 banks that responded to the question, 24, or 65%, said the percentage of C&I loans to such companies was between 0 and 5%. Twelve banks surveyed said they didn't have any outstanding loans to such firms.

Three firms said they had between 5% to 10% of C&I loans to companies with significant exposure to Europe while seven more said such lending represented between 10% to 20% of their outstanding commercial and industrial loans. Only one U.S. institution had more than 50% of its outstanding C&I loans to such nonfinancial companies.

The results were included as part of a series of special questions asked by the Fed attempting to assess the exposure of banks to the European crisis. The issue is a priority for U.S. regulators, especially following MF Global Inc.'s decision to file for bankruptcy last week.

Federal Reserve Board Chairman Ben Bernanke has repeatedly said that U.S. banks' exposure to debt-ridden counties like Greece, Ireland and Portugal has been minimal so far. At a press conference last week, Bernanke said regulators were continuing to monitor any potential stress on U.S. financial stability.

"We look at our financial institutions and try to assess the exposures and linkages between our institutions and those in Europe," said Bernanke. "We've been doing that on a consistent basis."

When it came to credit standards, the vast majority of survey respondents — 83% — said they have not changed credit standards when approving loans or credit lines to nonfinancial firms with significant exposure to Europe. The remaning 17% surveyed said they had tightened standards "somewhat."

That was not the case for European banks.

About two-thirds of firms, mostly large banks, reported they tightened standards on loans to European banks. Roughly 39% of all respondents said standards were "tightened considerably," while another 27% said they were "tightened somewhat."

Still, another 22 institutions reported they hadn't made any loans to such firms during that three-month period.

Demand for loans by nonfinancial firms remained largely unchanged for nonfinancial companies. Lending to European banks showed some signs of weakness in demand, but mostly appeared to stay the same, according to the survey.

The majority of respondents, roughly 88%, said the number of inquiries from nonfinancial companies didn't differ from past quarters with only a modest decrease.