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Lawmaker: $34B in U.S. Assets Exposed to Europe Debt

With the European debt crisis underway, lawmakers convened a hearing on Capitol Hill Thursday to address fears about systemic risks to the U.S. banking system as more euro zone markets falter. The verdict: billions of dollars in liquidity may face exposure to the European debt contagion ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a reality that U.S. authorities should continue to monitor without overreacting.

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Swerving at times to point to a bar chart, ""Sen. Mark Warner"":http://warner.senate.gov/public/ (D-Virginia) said that some $34 billion in U.S. liquidity may be ""in potential exposure"" to the wave of falling economic dominos and troubled assets from across the pond.

Witnesses highlighted an array of blind spots in transatlantic financial relations and affirmed fears that debt contagion could chip away at the U.S. banking system. Some also faulted euro zone financial institutions for their failure to disclose the bulk of their risks and assets.

""Things are likely to get worse in Europe before they can get better,"" ""Nicolas Veron"":http://www.piie.com/staff/author_bio.cfm?author_id=666, a visiting fellow with the ""Peterson Institute for International Economics"":http://www.iie.com/, read from a prepared statement. He said that Europeans and their leaders remain in denial, which means ""that contagion may spread further"" over a short amount of time.

""Financial contagion to the US [sic] from further deterioration in the Eurozone [sic] cannot be ruled out,"" he added.

Veron cited a 2009 ""Bank for International Settlements"":http://www.bis.org/ study revealing that the aggregate assets of Europe's top three banks bear some 43 percent of U.S. assets ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô

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a figure made less startling in lieu of aggressive international expansion by European banks, he said.

""The issue is global financial interconnectedness,"" said ""J.D. Foster"":http://www.heritage.org/About/Staff/F/J-D--Foster, a Norman B. Ture senior fellow with the ""Heritage Foundation"":http://www.heritage.org/.

He said that ""[n]o one├â┬ó├óÔÇÜ┬¼├é┬ª really knows or understands all the connections, or all the weaknesses.""

He laid blame at the feet of euro zone financial institutions for their failure to disclose the sum of their capital, liquidity, and risks, making matters worse for U.S. banks without the understanding needed to deleverage from Europe and prevent further exposure.

Foster explained in his testimony that U.S. markets could see a boon in the short term, with interest rates rising as more investors flock to Treasury debt.

""On the other hand,"" he said, ""there will be a flip side ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô at some point these capital inflows will become outflows, pushing up interest rates at an inopportune time,"" adding that U.S. exports could suffer losses, and with those losses, a shortfall in American jobs.

How should U.S. authorities prepare for the crisis?

Says Veron: ""Under the current circumstances, the US [sic] should not overreact and financially ring-fence itself from the rest of the world to an extent that would compromise global financial integration from which the US is one of the key beneficiaries. Thus, precautionary measures are warranted but should remain proportionate. This seems to be the current mindset of US financial authorities.""

In a ""past story"":https://themreport.com/articles/feds-seen-as-able-to-weather-crisis-if-greece-defaults-2011-09-19 for _MReport_, spokespeople for the ""FDIC"":http://www.fdic.gov/ and ""Office of the Comptroller of the Currency"":http://www.occ.treas.gov/ held fast to their battle-readiness when it comes to European troubled assets.

Concurring, ""Paul Dales"":http://www.capitaleconomics.com/staff/global-economics/paul-dales.html, a senior U.S. economist with ""Capital Economics"":http://www.capitaleconomics.com/, said in a past interview that he felt ""federal agencies are well-posed more so than they have ever been before,"" largely because of hindsight, given the financial crisis, and the rumor of problems that precedes the current debt fiasco.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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