June 19, 2011
Europe is still embroiled in Greece’s sovereign debt crisis. It has been more than a year in the making, allowing many American financial firms time to slash even their indirect exposure. But money market funds are still sitting on $360 billion worth of European bank short-term debt. That leaves open a trans-Atlantic channel for Greek turmoil to play havoc with United States markets.
True, the largest money market funds, which American savers see as alternatives to deposit accounts, have cut back lending to banks in peripheral countries like Italy and Spain and shut the door on those in Portugal and Ireland. But they’ve carried on their love affair with bigger European banks.
Moody’s last week put Crédit Agricole, BNP Paribas and Société Générale on notice for a possible downgrade because of their potential exposure to a Greek default. Yet money market funds have loans outstanding to French banks of around $200 billion, according to JPMorgan estimates. That’s about 12 percent of the assets under management, a proportion that hasn’t changed much over the last year, according to a Fitch survey of the 10 largest prime money market funds, despite Greece’s financial woes.
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