U.S. banks haven't loaned much money to Greece. So, on the surface, it shouldn't much matter for the U.S. financial system if Greece defaults on its debt.
But U.S. firms have apparently been doing a brisk business selling credit default swaps on Greek bonds — essentially, insurance contracts that pay off if Greece doesn't make good on its debts.
U.S. firms hold only $7 billion in Greek debt, but have sold $34 billion in CDS, according to the Street Light's analysis of BIS data. (The BIS breaks out data by country, but does not name individual firms.)
There's been a push lately for some kind of "soft default" for Greece that might not trigger payments on CDS contracts. (The details are still sketchy, but it would involve Greek bondholders agreeing to some sort of deal.) If that happened, U.S. firms might escape largely unscathed.
A similar lending pattern holds true for Portugal, which also has deep debt troubles: U.S. firms hold only $5 billion in Portuguese debt, but they've sold $41 billion in default insurance on the company.
This is, of course, a reminder how interconnected the global financial system is: European banks lend money to the Greek and Portuguese governments, and buy insurance against default from U.S. banks.
Hat tip: FT Alphaville