07-Oct (The Wall Street Journal) — U.S. bank exposure to the European debt crisis is estimated at $640 billion, nearly 5% of total U.S. banking assets, according to recent research papers written for Congress.

While U.S. Treasury Secretary Timothy Geithner says the U.S. banking sector’s vulnerability to the euro zone problems is “very limited,” the Congressional Research Service estimate is one of the first public assessments provided by the U.S. government that quantifies the potential risks.

According to two different reports provided to federal lawmakers last month, the debt problems of Greece, Ireland, Portugal, Italy, and Spain constitute a ”serious risk” to the European banking system, particularly German, French, and U.K. banks, which have close ties to U.S. banks. Markets believe there’s a very high likelihood Greece will default in the coming weeks. That could cause a cascade of other crises throughout Europe.

…The estimate doesn’t include U.S. bank exposure to European bank portfolios that include assets in the weak member countries. Also, it doesn’t account for euro-zone assets held by money market, pension, and insurance funds.

[source]

PG View: Geither’s sense of reality seems to have been distorted by all the absolutely huge numbers bandied about in recent years. Does he really view $640 bln is “very limited?” The Congressional Research Service goes on to say that, “depending on the exposure of non-bank financial institutions and exposure through secondary channels, U.S. exposure to Greece and other euro-zone countries could be considerably higher.” What exactly does “considerably higher” mean? Is it twice the $640 bln? More?