Eurozone crisis will not impact US banks: FDIC

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The eurozone debt crisis would not significantly hurt a US economic recovery or its banks, whose exposure to European debt is low, according to the chairman of the US Federal Deposit Insurance Corporation.

Concerns over European debt have reached a flash point in recent months, battering financial markets and triggering a crisis of confidence for the euro zone. But the exposure of US banks was limited, Sheila C. Bair said in an interview.

"There is not a lot of direct exposure of US banks to sovereign debt of the countries that are subject to some scrutiny," Bair told Reuters Insider Television.

"Obviously there is a lot of interaction between US banks and European banks but I think overall the Europeans are getting the situation in hand," she said.

Lenders from the United States were owed 17 billion in Greece at the end of 2009, data from the Bank for International Settlements showed, while French and German banks were owed USD 120 billion in Greece alone.

The debt storm that originated in Greece and prompted severe austerity measures across Europe was not expected to have an impact on US economic recovery either, Bair said.

"The banking system is healing. Eighty percent of banks have shown year-on-year improvement in earnings growth. Economic growth in the United States is expected to be 3% this year," she said.

"I think banks should be fine and towards the end of the year should be out of the woods," she said.

The US Senate and House of Representatives are struggling to compromise between two competing bills representing the biggest overhaul of financial regulation since the 1930s, which aims to limit risky trading by banks, boost their capital cushions, and shed light on shadowy markets.

"Having adequate capital base is the single most important thing a regulator or a bank can do. I don't buy the argument that higher capital requirement will lead to reduction in lending," Bair said.

Planned restrictions on over-the-counter derivative instruments should however, be imposed in a gradual manner, given the recent financial crisis in the euro zone, Bair said.

"Everybody recognises that there is a need of a transition but it should be gradual."

On the flight of capital from emerging markets to the United States, Bair said although it showed investors' confidence in the American economy, the dollar's strength against the euro could have some impact on exports.

"On the downside, a lot of economic recovery will rely on rebalancing of the global economy and we would like to increase our exports," she said.

"But if the currency strengthens against the euro, that can impact our ability to export. So it is a bit of a mixed bag."