The US Banks' Europe Exposure: How Big?

Ticker has fun with studies and reports.

...what Chris is talking about is the practice of counting a repo transaction as "cash."  Well, it only is cash if the asset is known to be good at face value at any point up to maturity.

There is at present only one security that can be trusted to be this way: US Treasuries.

Treating other "AAA" securities (Subprime Mortgage bonds anyone?) like this is one of the ways that Bear and Lehman blew up.  When the allegedly-good securities turned out not to be suddenly a loss appeared "out of nowhere", and since these securities were often held off balance sheet there was no clear way to know what the depth and quality of the exposure was before it blew up in the public's face....

Which is a problem, you see, because as it turned out, the actual US banks' counterparty exposure (in the 2008 fiasco) was TWENTY TIMES the initially-reported number.

See, the US investment and commercial banks used "off-balance-sheet" vehicles (principally offshore entities) to bury the bones.

So, while OCC says there's 'de minimis' exposure, remember that the OCC was off by 95% in 2008.

Hmmmmm.