<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Mark Whitehouse</p> <p>The U.S. financial sector is gradually severing its links with an increasingly troubled Europe, but the pace probably isn’t fast enough to prevent contagion if things go terribly wrong.</p> <p>The money-market funds that hold about $1.5 trillion in U.S. savings would be among the first to suffer if Europe's sovereign-debt problems bring down its banking system. That's because the funds have invested heavily in the debt of European banks -- a fact Federal Reserve Chairman Ben Bernanke has publicly noted in assessing the potential repercussions of a European meltdown.</p> <p>The managers of money-market funds recognize the risk, and have been paring their European exposure. Fitch Ratings estimates that as of September, 37.7 percent of all money-market assets were invested in European banks, down from 51.5 percent in May.</p> <p>Still, that leaves the funds' exposure to Europe at more than $500 billion. Even a small loss on such an amount could force a fund to "break the buck," bringing the share price below $1 as the Reserve Primary Fund did after the bankruptcy of Lehman Brothers Holdings in September 2008. That, in turn, could trigger a run on the funds by investors, crippling short-term lending markets on which companies rely for such everyday activities as buying supplies and paying their workers.</p> <p>In other words, the U.S. and other countries outside Europe still have a lot to lose if European leaders don’t resolve their crisis.</p> <p>(Mark Whitehouse is a member of the Bloomberg View editorial board)</p> </body> </html>