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March 28, 2014

With Banking, What Happens in Europe Does Not Stay in Europe

“It is often challenging enough to appreciate the political horse-trading surrounding the creation of United States bank regulations. We could certainly be forgiven for not understanding the political nuances of how the 28 member states of the European Union are creating new banking regulatory bodies.”

“Yet a last-minute compromise last week to create a so-called Single Resolution Mechanism, a central authority to resolve a bank failure in Europe, will have lasting consequences not only for European taxpayers, but also for Americans.”

“According to the Bank for International Settlements, globally systemically important banks in the United States have billions of dollars in exposures to European banks. Moreover, a significant portion of American banks’ derivatives portfolios are often booked in Europe for hedging, tax or regulatory capital purposes. Not captured in the data is that the majority of the foreign subsidiaries and branches of those American banks are in Europe. Given the interconnectedness of American and European banks, Europe’s ability to create a credible Single Resolution Mechanism that can resolve a bank failure in an orderly manner is an important step in strengthening the global banking sector.”

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Read full New York Times DealBook article here.

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