CNN Money
October 4, 2011
Greece's debt crisis may be an ocean away, but it's seeping into dozens of U.S. cities and towns thanks to troubled Franco-Belgian bank Dexia.
Dexia, which is rushing to implement a restructuring plan due to its exposure to Greek and other sovereign European debt, is also a player in the U.S. municipal bond market, though its role is now smaller than it was three years ago.
At the height of the financial crisis in 2008, Dexia backed about $54 billion in municipal bonds with lines of credit and so-called standby bond purchase agreements, which essentially made Dexia the buyer of last resort. Back then, Dexia was forced to buy back $17 billion in bonds, because of a lack of other buyers as investors fled from money market funds.
Today, Dexia said it only backs about $9.6 billion in muni bonds, since it has been exiting the business of providing liquidity to cities and states. That's just 0.3% of the $3 trillion U.S. municipal bond market.
And since money market funds have slashed their exposure to bonds supported by Dexia, leaving mostly hedge funds and other institutional investors as bond holders, the bank is on the hook for a lot less, too.
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