Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said. “I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” The program, scheduled for broadcast today, was taped on May 13. Neither Papandreou nor Zakaria mentioned any banks by name.

Shares in European banks with big investment banking arms were under pressure Monday on fears they could face similar fraud accusations to the U.S. Securities and Exchange Commission’s Friday charge against Goldman Sachs Group Inc. (GS). At 0950 GMT, UBS AG (UBS) stock was down CHF0.63, or 3.5%, at CHF17.30, Deutsche Bank AG (DB)was down EUR0.80, or 1.4%, at EUR54.69 and HSBC Holdings PLC (HBC) fell 14 pence, or 1.9%, to 684 pence.

European Central Bank chief Jean-Claude Trichet has warned that credit default swaps “should not be misused in a speculative manner.” In a Friday speech, he says the credit default swaps market needs to be more transparent to regulators and investors. EU regulators have threatened to ban the use of credit default swaps, a type of insurance on government debt, when the investor does not actually own the underlying debt. They blame swaps traders for unfairly increasing pressure on Greek borrowing costs.

Clearing Member Eligibility
•Swap Portfolio minimum size of USD1 trillion
•Minimum capital USD5 billion in Clearing Entity or in Parent providing Guarantee
•Credit Rating single A or better
•Margin multipliers applied if existing member downgraded below A
•Compulsory participation in Default Management Process

Suspects in the subprime crisis
•Technological innovation in the delivery of credit
•Modeling approaches allowed lenders to more finely differentiate and pool riskier borrowers…borrowers who had trouble getting credit in the past
•Did lenders overshoot?
•High CLTV means thin equity for homeowners.
•Doesn’t take much of a decline in prices to put homeowners “under water”
•Lenders might have underestimated the probability of a broad housing shock