OFR_2016_Financial-Stability-Report

Fund Monitor, the OFR assessed exposures of U.S. money market funds to
large EU banks. Fund exposures to these banks have declined by half over
the past five years but remain large for some banks (see Figure 27). An EU
disruption that makes European assets less creditworthy could stress these
funds. However, the effect on U.S. money market funds may be limited. In
anticipation of the October deadline for compliance with money market
fund reform, some substantially reduced the duration of their overall credit
exposures, resulting in less volatile asset pricing.
European financial firms’ U.S. operations. Some European financial firms
have material U.S. operations. The exit of these firms could have short-run
effects on the provision of credit and other financial services in the United
States, although other firms may take their place over time. For example, the
total assets of U.S. primary dealers with European parents decreased from
$1.35 trillion to $0.88 trillion from 2011 to 2015 (see Figure 28). Over the
same time, the total assets of U.S. primary dealers with U.S. and non-European
parents also fell. As a result, U.S. primary dealers’ balance sheets
shrank overall. A further decline in U.S.-based broker-dealer balance sheets
may reduce liquidity in U.S. markets. A small number of European global
systemically important insurers own U.S. life insurers. The EU parents are
Figure 27. U.S. Money Market Fund Exposure to Select European
G-SIBs ($ billions)
European exposure has declined but remains significant
450
400
350
300
HSBC
Credit Suisse
Deutsche Bank
BNP Paribas
Barclays
250
200
150
100
50
0
2011 2012 2013 2014 2015 2016
Note: Three-month moving average. G-SIB stands for global systemically important
bank.
Sources: SEC Form N-MFP, OFR analysis
28 2016 | OFR Financial Stability Report