Federal Reserve Chairman Ben Bernanke told a congressional panel Wednesday that U.S. banks could withstand shocks from Europe, even if the debt crisis there significantly worsened.
The U.S. banking system remains exposed to Europe, but stress tests conducted by the Fed found most banks could weather a severe recession triggered by the debt crisis, Bernanke told the House Oversight and Government Reform Committee.
"Although a blow up in Europe would be very costly to the American economy, I think we are in much better shape to meet those challenges than we were a few years ago," Bernanke told the committee.
The Fed looked at how the 19 largest U.S. bank holding companies would handle a recession that drove the unemployment rate to 13 percent and cut stock prices 50 percent. The stress tests found all but four were strong enough to survive.
Bernanke said U.S. financial firms and money market funds have had time to adjust their exposures and hedge their risks. While those exposures have been reduced, Bernanke said that roughly 35 percent of assets in U.S. prime money market funds are European holdings.
The Fed chairman also noted developments that have minimized the danger overseas. Bernanke pointed to bailout support that European leaders provided in exchange for deep budget cuts by the Greek government and he highlighted the agreement by private creditors to reduce Greece's debt.
Treasury Secretary Timothy Geithner told the committee that the Obama administration will not ask Congress for more money to help debt-laden European countries.
Still, Greece's international creditors see "significant risks" that the country might fail to bring down its debt burden within targets, according to a document seen by The Associated Press on Tuesday.
The creditors say Greece's program of austerity measures and structural reforms "could be accident prone," according to the report from the International Monetary Fund, the European Commission and the European Commission.
"Authorities may not be able to implement reforms at the pace envisioned," the report said.
Associated Press Writer Juergen Baetz contributed from Berlin to this report.