Citi sees no systemic risk from euro debt

The euro zone's debt crisis will not become a systemic risk for the global banking industry, according to a senior executive of Citigroup, which plans to put more resources into Asia to capitalise on the region's growth.
"The European crisis - I don't think it will become systemic for the banks. It could create some additional stress on European banks but governments stand behind them," Jeffrey Shafer, vice chairman of Citi's global banking, said in an interview in Seoul on May 13.
European leaders and the International Monetary Fund this week agreed to provide a $1 trillion emergency package to stabilise the euro zone and reassure markets worried about Greece's debt woes spreading to other nations.
The banking industry, although recovering, faces regulatory uncertainties, with fragmented national policies that could dampen banks' global operations, Shafer said, adding he hopes to see bank capital ratio regulations that could help counter cyclical swings.
"The banking environment of the future is still uncertain because of what's finally going to happen in the regulatory environment is up in the air.
"What I worry about most is if we compartmentalise banks too much ... and don't look at banks as global institutions, it is going to impair international capital flow, support of trade and support of international investment - and it will be a drag on the economy."
Shafer, speaking on the sidelines of the Seoul Digital Forum, said monetary tightening at a global level still appears premature given lingering deflationary pressures in the United States, Japan and Europe.
"On fiscal policy front you can't exit fast enough. On monetary policy I think deflationary forces in the US, Japan, and Europe are still extraordinarily strong and will continue to be for a long time," he said.
Shafer expected Citigroup, the third-biggest US bank, to perform well in coming quarters after posting strong first-quarter results, with the economy heading toward recovery.
"I'm optimistic we will continue to have strong performances. The underlying banking trend is going to be strong. I don't see a double dip."
Citi will focus on Asia in both corporate and retail banking, as it targets multinational firms coming to Asia as well as Asian companies expanding globally, Shafer said.
"Asia is where we put our resources, bring in new people and hire," he said, adding international banking service for Asia's rising urban middle class is another area it plans to grow. For the US banking industry, he pointed out some of remaining risks but downplayed the possibility of full-blown problems.