Banks reduced their holdings of Greek, Irish, Portuguese and Spanish debt in the second quarter as the sovereign crisis roiled credit markets, according to the Bank for International Settlements.
Lenders cut the amount they had at risk to the nations by $107 billion to $2.28 trillion, BIS said in its latest quarterly report. Virtually all major banking systems reduced their exchange-rate adjusted holdings in Greece during the period, the BIS said.
"Concerns about sovereign risk in several euro-area economies have resurfaced and become the dominant theme," the BIS said. "Irish government bonds came under particularly strong pressure, but Greek, Portuguese, Spanish and later Belgian and Italian government bonds were also affected. Sovereign yield spreads between these countries, and Germany continued to reflect concerns about
their public finances."
The European Union and International Monetary Fund established a €750 billion crisis fund in May after Greece's near-default threatened the survival of the euro. European finance ministers ruled out immediate aid for Portugal and Spain or an increase in the fund, relying on European Central Bank bond purchases to calm investor concern.
Ireland's €85 billion bailout from the EU and the IMF last month failed to reassure investors about the soundness of the public finances in the region, the BIS said.
Banks have been the second-worst performers among 19 industry groups in the Stoxx Europe 600 Index this year. The sector index has dropped about 8 percent as Greece and Ireland sought bailouts and concern grew that more European countries, such as Spain and Portugal, may struggle to shore up their public finances, hampering economic growth.
French banks had the most at stake in Greece, with $83.1 billion at risk, compared with German bank holdings of $65.4 billion, the data show. British banks had $187.5 billion in exposure to Ireland, while German lenders had $186.4 billion.
Banks in Germany, Europe's biggest economy, had $512.7 billion at risk to Greece, Ireland, Portugal and Spain at the end of the second quarter. That included $59.6 billion to the public sector and $150.4 billion to banks, the BIS said.
French lenders had $410.2 billion at stake in the four countries. Banks in the UK had $370 billion at risk, and lenders in the U.S. $352.9 billion. Globally, lenders had about $242.4 billion in public-sector exposure to Spain, Ireland, Greece and Portugal, the BIS figures showed.
Bloomberg