As bad as circumstances are for U.S. banks right now, they are even worse for their European counterparts, which have been the subject of mounting speculation and fear.

The fact is that the very viability of many bank--apart from government interventio--has become an issue again, and that is a bad sign. UBS and Credit Suisse have been forced into the uncomfortable position of having to deny media reports that they have tapped the Federal Reserve's swap facility via the Swiss National Bank in an effort to shore up short-term funds.

In any case, the Federal Reserve Board of New York is sufficiently concerned that it opened up an inquiry into European banks and the risks they pose to the U.S. market. The distinct fear is that they are facing funding issues within their U.S. affiliates--problems that could eventually trigger additional volatility.

As of now, we can only assume that European banks have enough liquidity-enhancing options to operate normally. All this is part and parcel of larger fears about how to keep banks humming across the Euro-zone. The worst case here is that banks again double-dip so badly that they would require state intervention. Germany is really on the hot seat at the moment. France is as well. In the end, they may have to accept more fiscal responsibility for other nations.

For more:
- here's a Financial Times article

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