By Robin Harding and Tom Braithwaite in Washington and Justin Baer
US regulators have stepped up monitoring and contingency planning in their efforts to make sure the domestic financial system is ready for any crisis in Greece, according to banks and officials at some of the agencies involved.
Regulators have asked banks about their direct and indirect exposures to Greece, for details of credit default swaps they have written on European banks, and about any scenario planning that they have carried out.
Ben Bernanke, the chairman of the Federal Reserve, said at his press conference on Wednesday: ?We have asked the banks to essentially do stress tests and ask, looking at all their positions, all their hedges, what would the effect on their capital be if Greece defaulted.?
Although US authorities said that they do not anticipate any kind of Greek default, their preparations are being taken as a measure of concern about Europe?s struggle to reach a unified policy response.
Mr Bernanke said that the direct effects on US banks would be ?very small?.
US banks have also been reducing their exposure to other ?peripheral? European countries, regulators have learnt, giving bank supervisors some confidence that the US financial system could ride out broader turmoil across the Atlantic.
But the regulators want to be sure that the system is prepared for any general increase in risk aversion, leading to falls in asset prices and a flight to liquidity in the wake of a crisis.
Mr Bernanke said: ?A disorderly default in one of those countries would no doubt roil financial markets globally. It would have a big impact on credit spreads, on stock prices and so on.?
One area of concern is the Federal Reserve?s dollar swap lines with European central banks, which are due to expire on August 1. Previous rounds of financial tension have seen a flight to the safety of the US dollar and the swap lines help to make sure that overseas banks have access to short-term dollar funds.
The Fed declined to comment on whether it had already extended the swap lines pending publication of the minutes of this week?s policy meeting, but an extension is considered highly likely.
Even though levels of direct exposure are low, officials have gone to considerable lengths to identify other possible channels of contagion to the US financial system.
Some officials said that in light of the fact that banks have been aware of the issue since the troubles in Greece began to surface more than a year ago, they are optimistic that the risks to the system are well understood.
One concern is the exposure of money market funds to short-term debt issued by European banks that in turn have exposure to Greek credit.
?To the extent that there is indirect impact on the core European banks, that does pose some concern to money market mutual funds and is a reason why the Federal Reserve and other regulators are continuing to look at ways to strengthen money market mutual funds,? said Mr Bernanke.
If there were a disorderly default in Greece, it would present the first test of the new, so-called macroprudential approach to financial regulation that was adopted in the aftermath of the 2008 financial crisis.
Macroprudential regulation aims to consider the risks that individual banks might pose to the whole financial system as well as to the institutions themselves.
? The Financial Times Limited 2011