Banks Conduct Greek 'Fire Drills'

Wall Street Journal
November 3, 2011

Banks across Europe are starting to take seriously what until now seemed only remotely possible: the withdrawal of Greece from the euro currency.

As the fate of Greece's future in the euro zone hangs in the balance, European banks and U.S. banks that operate in Europe are conducting "fire drills" to prepare for a Greek pullout. They are beefing up their hedges against Greek exposure and having lawyers review loan agreements with Greek companies.

Until now, most Greek concerns have focused on the possibility of a sovereign default and the losses banks would have to take on their holdings of Greek bonds.

Increasingly, however, banks are trying to figure out what would happen to their loans, many of which are denominated in euros, if Greece resuscitates its old currency, the drachma.

One thing seems clear: Greece's withdrawal from the common currency would be "very, very messy" for the Continent's banks, said a senior U.K. banker.

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