##s have helped european banks avoid the significant liquidity pressures we feared a few months ago and have reduced the risk that they would need to sell off their u. s. dollar assets abruptly. conclusion in sum, i am hopeful that europe can effectively address its current fiscal challenges. the federal reserve is actively and carefully assessing this situation and the potential impact on the u. s. economy. at this time, although i do not anticipate further efforts by the federal reserve to address the potential spillover effects of europe on the united states, we will continue to monitor the situation closely. thank you for your invitation to testify today, and i look forward to answering your questions. bis central bankers ’ speeches

. exports would decrease. this would hurt domestic growth and have a negative impact on u. s. jobs. it is important to recognize that the euro area is the world ’ s second largest economy after the u. s. and an important trading partner for us. also, europe is a significant investor in the u. s. economy, and vice versa. thus, what happens in europe has significant implications for our economy. second, deterioration in the european economy could put pressure on the u. s. banking system. as the recent round of stress tests revealed, u. s. banks are much more robust and resilient than they were a few years ago. they have bolstered their capital significantly, built up their loan loss reserves and have significantly larger liquidity buffers. the direct net exposures of u. s. banks to the so - called “ peripheral ” european countries are actually quite modest. the good news in the united states means that we are better able to handle bad news from europe. with that said, the exposures of u. s. banks climb sharply when one also considers their exposures to the core european countries and to the overall european banking system. u. s. money market mutual funds, in particular, have significant european holdings. this means that if the crisis were to broaden further and intensify, it would put pressure on the capital and liquidity buffers of u. s. banks and other financial institutions. third, severe stresses in european financial markets would disrupt financial markets here, which could harm the real economy. stress in the financial markets causes banks to more carefully husband their balance sheets. when that phenomenon occurs, the availability of credit to u. s. households and businesses becomes constrained. such conditions could also cause equity prices to fall, impairing the value of americans ’ pension and 401 ( k ) holdings. this would damage the u. s. recovery and result in slower output growth and less job creation. at a time when u. s. unemployment is very high, this is a particularly unacceptable outcome. in the extreme, u. s. financial markets could become so impaired that the flow of credit to households and businesses would dry up. bis central bankers ’ speeches u. s. dollar swaps in today ’ s globally integrated economy, banks headquartered abroad play an important role in providing credit and other financial services in the united states. about $ 1 trillion in worldwide dollar financing comes from foreign banks, $ 700 billion in