According to Bloomberg, some of the European banks are being quoted higher rates in the commercial paper market. Premiums on short-term loans are rising as odds of a default by Greece grows. Moody’s is planning a downgrade on some of the banks.

The eight biggest U.S. money-market funds reduced their investments in French banks by 46 percent to $42 billion in the past 12 months.

Credit-default swaps, the cost of insuring European sovereign and bank debt rose to records. (Credit-default swaps typically increase as investor confidence deteriorates and fall as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. )

Although the stock prices of the banks are inevitably tumbling, I am more concerned about the counter-party and credit risks caused by these banks.

With their long history and past financial strength, these banks are Guarantors for many financial products. These guarantor relationships become part and parcel in many investors portfolio without even being noticed. This is the time investors should re-look at their portfolios and understand what are the real impacts should any of the banks fall.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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