If The Euro Zone Splits, Houston Banks Suffer

English: Eurozone map, updated January 2011
   Eurozone (17)
   EU states obliged to join the Eurozone (8)
   EU state with an opt-out on Eurozone participation (2)
   Areas outside the EU using the euro with an agreement (4)
   Areas outside the EU using the euro without an agreement (4)
European leaders will meet this Friday in Brussels to try to hammer out a solution to the euro zone's sovereign debt crisis. If they fail, many investors fear one or more of Europe's troubled economies may be forced to abandon the euro.

Bent Sørensen teaches international economics at the University of Houston.  Sørensen says the risk of a euro zone crack up is a bit exaggerated. But he says investors’ fears of such an event could take on a momentum of their own. He compares the situation to the 2008 financial crisis, with sovereign debt filling the role once played by mortgage-backed securities.

“Given that the banks might be at risk, and given that the political environment is not such that a second bailout is going to come very easily, there is a risk to the financial system.”

Banks with headquarters in the euro zone, the United Kingdom and Switzerland would be the most vulnerable in the event of a euro zone break up. Those with a large presence in Houston include Spain’s BBVA, France’s BNP Paribas, Royal Bank of Scotland and Credit Suisse First Boston.

It’s likely, though, that a major shock to the euro zone would ripple throughout the global financial system. Houston businesses and consumers would, at the least, suffer a severe credit crunch.

 

Bio photo of Andrew Schneider

Andrew Schneider

Business Reporter

Andrew Schneider joined KUHF in January 2011, after more than a decade as a print reporter for The Kiplinger Letter...