Greek Default Could Tip US Into Recession

Despite being more than 5,000 miles from Washington D.C., a default in Athens could trip up the global banking system just enough to tip the U.S. into a recession, investors and economists said.

“Due to financial trading relationships and off-balance sheet exposure to European banks, the U.S. banking system will not go unscathed,” said Michelle Meyer, a Bank of America Merrill Lynch economist, in a note to clients Friday. “If the crisis in Europe escalates, it could be the shock that pushes the U.S. economy into recession [cnbc explains] ."

While this is not the base case predicted by Bank of America [BAC 6.99 --- UNCH ], the firm does still prepare its clients for this possibility by laying out how the Greece crisis could quickly become a “Lehman event.” After all, a 50 percent haircut on Greek sovereign debt [cnbc explains] would mean a very manageable $60 billion, or just two percent, of total bank foreign claims for U.S. banks, according to the report. But that’s just director exposure.

There are five major ways the U.S. is connected: trading counterparty risk and derivative ownership with heavily-exposed European banks, overall market confidence, central bank funding, money-market funds [cnbc explains] and trade flows. more