NEW YORK ( TheStreet) -- Part of the gloom sitting over the U.S. markets has to do with the uncertainty surrounding the fate of the world's banking system should any of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) default on their sovereign debt.The European Central Bank's recent action to "save" Greece really wasn't undertaken for the sake of Greece. Rather it was like the saving of AIG ( AIG) in 2008 by the Treasury via the Troubled Assets Relief Program. While that move was, in fact, done to save Wall Street's "too big to fail" from the domino effect that would have resulted from their large counterparty exposure to each other, so too was the ECB's bailout plan put in place to protect the European banking system, especially Germany, the Netherlands, Belgium, and France. In April, the Bank for International Settlements published a study showing the percentage of bank assets exposed to the sovereign debt of the PIIGS by country. Canada, Chile, Panama, and Mexico had zero exposure. Here's the exposure of other major economies. The first set of exposures appear to be minimal, with total banking exposure not a threat to the financial systems -- Australia: 0.08%; Brazil: 0.198%; U.S.: 1.57%. The following exposures would imply that the country's banking capital may be exposed -- U.K.: 4.53%; Austria: 4.84%; Japan: 5.02%; Germany: 6.18%; Netherlands: 6.79%; Belgium: 7.93%. Finally, these three appear to have significant issues if there is a sovereign default -- France: 10.4%; Ireland: 13.50%; Portugal: 14.08%. Several conclusions jump out from this data:
- A default in any one of the PIIGS would likely cause the Irish or Portuguese banking systems to collapse, and maybe France's. This may have a domino effect on those systems with exposures of 4.5% or more, thus the logic for the ECB's recent actions.
- The Americas, both North and South, and Australia have little exposure and, besides stock market unease, are unlikely to have systemic banking risk as a result of a PIIGS sovereign default.