WASHINGTON (Reuters) - Around half of top U.S. banks surveyed by the Federal Reserve reported making loans or extending credit to European banks, which are under massive pressure from an ongoing political crisis.
The findings from a quarterly lending poll suggest that the U.S. banking system faces significant risks from Europe, despite relatively small direct exposure to the troubled sovereign bonds of southern European states like Greece.
"About one-half of domestic banks respondents, mostly large banks, indicated that they make loans or extend credit lines to European banks or their affiliates or subsidiaries, and about two-thirds of the foreign respondents indicated the same," the U.S. central bank said in its Senior Loan Officer Survey, published on Monday.
Of the domestic banks, about two-thirds reported having tightened standards on loans to European financial institutions in the third quarter, many considerably.
Euro zone governments rushed to placate feverish bond markets on Monday as the currency bloc's debt crisis threatened to accelerate out of control, with Italy overtaking Greece as the prime threat to stability.
Italian government bond yields rose to their highest since 1997 -- approaching levels regarded as unsustainable -- as political turmoil in Rome threatened to drag the euro zone's third largest economy deeper into regional debt crisis.
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