Fed concerned about European banks' U.S. units: report (Reuters)

LONDON (Reuters) ? The U.S. Federal Reserve Bank is taking a closer look at the U.S. units of Europe's biggest banks, concerned that Europe's debt crisis could spill into the U.S. banking system, the Wall Street Journal reported.

The Fed's New York branch -- which oversees U.S. units from many European banks -- is asking more information about whether the banks have reliable access to the funds needed to operate in the United States, the newspaper said.

New York Fed officials "are very concerned" about European banks facing funding difficulties in the United States, a senior executive at a major European bank who has participated in the talks told the Wall Street Journal.

The New York Fed was not available to comment.

On Wednesday, one euro zone bank borrowed $500 million from the European Central Bank at a rate much above those at which banks can get dollars in the open market, indicating at least some distress in that market.

It was the first time since February 23 a bank used the central bank's facility, and came as the escalation of Europe's debt crisis limits interbank lending. Dollar funding costs for euro zone banks have trebled over the last month.

Fed officials recently have held meetings with U.S.-based executives from top European banks to discuss their funding positions, the Wall Street Journal said.

Regulators are trying to guard against the possibility European banks that encounter trouble could siphon funds out of their U.S. arms, sources told the Wall Street Journal.

Regulators recently have ramped up pressure on European banks to transform their U.S. businesses into self-financed organizations that are better insulated from problems with their parent companies, the Wall Street Journal cited a senior bank executive as saying.

Many European banks run big trading businesses in the United States that use dollars to fuel borrowing and lending, the Wall Street Journal said.

The U.S. branches of foreign banks became net borrowers of dollars from their overseas affiliates for the first time in a decade, Federal Reserve data released last week showed.

(Reporting by Douwe Miedema in London and Soham Chatterjee in Bangalore; Editing by David Cowell)

Source: http://us.rd.yahoo.com/dailynews/rss/economy/*http%3A//news.yahoo.com/s/nm/20110818/bs_nm/us_banks_europe_fed

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