The impact of a breakup of the euro, whether by a large or small Eurozone member, will have significant consequences for US-headquartered financial services providers. Not only are those US companies among the key players with operations in the Eurozone, but many of them are among the largest foreign exchange traders in the world. An immediate consequence will be felt in their critical relationships with their US regulators, at the same time there will be an impact on their income and balance sheets that should be tracked and explained to their regulators. The timing of when in the future, if at all, such a breakup were to occur provides our clients with the opportunity to be prepared for such an event and they should use that time to put themselves in the best possible position to deal with such an occurrence. Other issues to consider is the Federal banking regulators’ recently proposed Basel III capital rules and the different approaches being considered by, for example, the United Kingdom’s ring-fencing strategy and the FDIC’s Resolution Authority.
Our London-based Eurozone Response Group has already put some thought into providing guidance to clients on how to best be prepared for such a contingency, as you can see from a recent client alert and via a recent posting by our colleague, Jacqui Hatfield. US financial institutions cannot afford to delay preparations and should begin working now to develop a globally seamless and coordinated plan to deal with the risks associated with the Eurozone crisis.