As worrying as the European debt crisis is, U.S. banks are at least less vulnerable to the kinds of disruptions that have recently flared up in short-term funding markets across the Atlantic than they were in 2008.

Their balance sheets hold vast reservoirs of liquidity. Mostly reflecting reserves that are a byproduct of the roughly $2 trillion portfolio of mortgage, Treasury and other securities the Federal Reserve built up as part of its unconventional effort to drive down interest rates, seasonally adjusted cash at domestic commercial banks equaled 8.3% of assets toward the end of May, according to data from the central bank. That was up from 2.8% toward the beginning of September 2008 — the month Lehman Brothers failed.

Meanwhile, deposits, excluding time accounts with balances of $100,000 or more, funded 57.9% of assets, up from 49.4%, and borrowing from other banks fell 2.4 percentage points to 1.6% (see charts).

Combined federal funds and repurchase borrowing has rebounded from a recent low of 3.4% of assets, without seasonal adjustments, in the fourth quarter of 2008. At that time, short-term credit channels had broken down and the unraveling financial industry was forced to turn to the Fed for massive amounts of emergency help. But at 6.4% at the end of last year, this funding ratio was still significantly lower than the range of 7.9% to 11.5% that prevailed from 2000 to 2006.

In any event, the crunch that beset European banks last month appears to have stabilized for the time being. After jumping 19 basis points through May 25, the three-month London interbank offered rate held steady at about 54 basis points through the first week of June. Analysts have also cited comforting signs such as light use of the currency swap facility that the Fed reestablished with foreign counterparts.

In a report last week, analysts at JPMorgan Chase & Co.'s investment bank wrote that fears that the European crisis could spread to banks in stronger countries "appear overblown" — though the possibility cannot be excluded that the strains that shut out banks in the Continent's most troubled economies from short-term funding markets could become contagious.

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