Risk USA: US regulators “scared to death” by eurozone debt crisis

The sovereign debt crisis is a concern, but direct US bank exposure is manageable, says senior OCC official

US supervisors are growing increasingly alarmed by the European sovereign debt crisis, with one senior regulator at the Office of the Comptroller of the Currency (OCC) stating his agency is "scared to death" by events unfolding on the other side of the Atlantic.

Speaking on a panel at the Risk USA conference in New York this morning, Michael Brosnan, senior deputy comptroller for large bank supervision at the OCC, said US regulators are increasingly worried about events in Europe - which most recently saw Greek prime minister George Papandreou announce a surprise referendum on the bail-out measures. However, he stressed the outright exposure of US banks regulated by the OCC is manageable.

"Of course we're concerned - we are scared to death. How the euro performs and whether their banks stand up is a massive concern, but in terms of the direct exposure to Portugal, Ireland, Italy, Greece and Spain, the direct risk to US banks is small. But it is not a trivial matter if Europe's economy slows down, the euro becomes too weak and we have to deal with trade imbalances," said Brosnan.

Brosnan also criticised aspects of the Dodd-Frank Act, arguing that several apparently contradictory elements in the legislation have left banks uncertain how to adapt their business models.

"I don't think many people have actually read Dodd-Frank, but they complain about it and those complaints are valid. There is conflicting language in the statute, and it is not clear what outcomes are wanted. If you're an institution trying to serve your customers, meet your shareholder needs and take care of your employees, then it's very tough in this market. It's not clear what revenues will be allowable down the road, as well as the costs, the capital, the liquidity constraints, and what the heck the business model will be," Brosnan stated.