Prepared

U.S. Banks Ready for European Defaults

Credit-default swaps limit their exposure.

Five large U.S. banks have more than $80 billion of exposure in Italy, Spain, Portugal, Ireland, and Greece—money the banks could lose if those countries default because of the European financial crisis. Fortunately, they have made use of credit-default swaps, a type of financial insurance, which have allowed the five banks to offset their potential losses by $30 billion. Citigroup has 47 percent of its exposure potentially protected—the highest percentage of any U.S. bank—while Bank of America purchased protection for just 12 percent. A Bank of America spokesperson said, “We carefully manage our risk while still supporting our clients in Greece, Italy, Ireland, Portugal, and Spain.”