Robert Arvanitis, chief executive of Risk Finance Advisors in Westport, Conn., and an expert in insurance, speculated that the United States was afraid that A.I.G.'s foreign bank counterparties would suffer large hits to their capital cushions, the amount they must set aside in case of losses.
Another troubling aspect to some is that so many of the counterparties are foreign institutions.
But the transactions have to be approved by the State Administration of Foreign Exchange, and the counterparties must be in Asia, Mr. Xing said.
A Western bank could even abandon a local subsidiary, although Mark Young of Fitch, a credit-rating agency, thinks that is pretty unlikely as it would create wider fears among depositors and counterparties about foreign parents' resolve to stand by their CEE operations.An obvious test-case is the three Swedish banks that dominate lending in the Baltic states.
Britain's banks lend more to India than any other country's, accounting for 28% of the world's exposure to India, according to the Bank for International Settlements.Britain is India's biggest counterparty for foreign direct investment (FDI something official figures do not show.
HSBC's regulators, like most around the world, did not want deposits in one country to be used to finance a subsidiary overseas, exposing the bank to foreign-exchange and counterparty risk.
Figure 2 displays foreign claims of reporting banks on counterparties in Spain, which is safe to assume are mostly banks.
With sweet justice, some think, the many foreign hedge funds that acted as banks' counterparties have borne the losses, forcing some to quit Japan.The accounting loophole has been closed in other rich-world jurisdictions.
Open image in new window Fig. 2 Foreign claims of BIS reporting banks on counterparties in Spain.
The reluctance of investors to hold assets denominated in pesetas, the old Spanish currency, and the reluctance of Spanish counterparties to issue liabilities in foreign currencies limited the size of Spain's external imbalances.
