Europe sidelined in U.S. credit crunch fund plan

By Thomas Atkins

ZURICH (Reuters) - European regulators and banks remain on the sidelines for now as U.S. officials plan an $80 billion fund to kick-start mortgage securities markets that, if they remain stalled, could threaten the global economy.

Leading European banks, regulators and finance officials were left scratching their heads after details surfaced over the weekend about a U.S. Treasury plan to corral major banks including Citigroup Inc (C.N) into the fund.

"There are certainly no plans for anything similar in Europe. So it's a U.S. subprime issue involving two or three of the large U.S. banks," Sandy Flockhart, head of global commercial banking at HSBC Holdings (HSBA.L), Europe's biggest bank, told a media briefing in Hong Kong.

Other banks and regulators said they had not played a major role in the creation of a super warehouse for ailing assets.

"We are supportive of any UK banks who want to participate, but it is a commercial decision for each bank," said a spokeswoman for the UK Financial Services Authority. "It is a private sector-led solution."

A spokesman for Switzerland's financial regulator EBK had a similar response. "It's a financial sector thing, but we're not involved ... If banks want to participate, then they can decide."

Neither were German banks in the loop.

"I think as a working hypothesis you can assume that German banks are not involved," a source familiar with the German banking industry said.

The U.S. plan would see banks pool mortgage securities and other illiquid assets together in the hope it would prevent a fire sale that could generate billions of dollars in losses and send shockwaves through the financial system.

Pooling the ailing assets into a separate warehouse may help isolate the risk, restore confidence and even allow the fund to offload the assets at a better price than if banks individually rushed for the exits.

The credit crunch, originally triggered by a collapse of the U.S. market for subprime mortgages, has forced central banks to pump record amounts of liquidity into the interbank system after fear of surprise losses caused the system to clam up.

Banks, which depend on one another for overnight lending, have been reluctant to do so while the scale of exposure remains unknown.

Banks such as Citi, Switzerland's UBS AG (UBSN.VX) and France's BNP Paribas (BNPP.PA) have admitted billions in losses due to the crisis.

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But some Europeans remain skeptical the fund will actually take off -- even if the subprime crisis has already damaged European banks' profits and forced several rescue efforts.