European ownership of US debt surges 56%: BIS

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European banks raised their purchase of US state debt during the first quarter of the year by 56 percent and are now the most exposed foreign banks to US public debt, the BIS said Tuesday.

European-headquartered banks' holdings of US debt reached $752.6 billion at the end of the first three months of the year, while claims on the US banking and private sector held steady during the period, according to fresh data released by the Basel-based Bank for International Settlements.

The United States is currently in intense negotiations to raise the country's debt ceiling. If it fails to get a deal before August 2, the country could be forced to default on its obligations.

BIS data shows that overall public debt held by European banks increased across the board or held steady during the first quarter, except in Greece, where it fell by nearly $12 billion from the previous quarter to $42.9 billion.

Lending by European banks also fell in Japan, from $231.2 billion to $189.2 billion.

Europe has been in turmoil since last year due to fears that some of the continent's economies -- notably Greece, Ireland and Portugal, but also Italy and Spain -- would be unable to meet their debt obligations.

On Monday, Greece's rating was cut by three notches to just above default status by Moody's agency.

German banks were the biggest lenders to the Greek state, to which they lent $14.1 billion or 33 percent of total Greek public debt.

Their French counterparts were close behind, lending 31 percent of Greek state debt.

French banks hold 30 percent of Spanish public debt while German financial institutions hold 27 percent.

French banks meanwhile also have significant exposure to Italian state debt, holding about 45 percent of the country's public debt, according to BIS data which only includes figures from 24, mostly large economies.

The data however excludes China, the biggest holder of US treasury bonds, as well as data on public sector claims held domestically by banks headquartered in the same country.

© 2011 AFP

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