Why is this not surprising? Despite denials, it turns out that big U.S. banks are carrying a lot of risky European debt.

This matters to business owners because it is likely a key reason those same banks are approving so few small business loans. In December banks with assets between $10 billion – $50 billion OK'd only 9.7 percent of these requests.

For months soon-to-be former Treasury Secretary Tim Geithner has been going on about how well U.S. banks are protected from problems in Europe. Here’s what he told Congress in October,

U.S. financial institutions, including our major banks and money market funds have substantially reduced their exposure to the economies of Europe that are under the most pressure. Our direct financial exposure to those governments and their financial institutions is quite small.

Does $80 billion strike you as a small amount? Well it turns out the five largest American banks alone are holding that much debt from Italy, Spain, Portugal, Ireland and Greece – the most economically stressed nations in the euro currency zone. Doesn’t that strike you as the kind of thing the Treasury Secretary should know?

Geithner has asserted this fiction because the banks (a/k/a the usual suspects: JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley) all say their assets are covered by credit default insurance. Which means there assets are only as good as the companies that issued the insurance. If we’ve learned anything in the last few years it’s that this is the kind of situation that usually goes south fast.

Don’t worry, though, Ben Bernanke says the Fed will protect us. Bernanke told Congress yesterday that the Federal Reserve would do everything it can to prevent Europe’s worsening finances from damaging the economy.  Ben promised to “continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy.” I feel better now, don’t you?

Bernanke came close to actually admitting how bad small businesses have it right now. “Though many smaller businesses continue to face difficulties in obtaining credit, surveys indicate that credit conditions have begun to improve modestly for those firms as well,” he told Congress.

Thanks for the nod, Ben. We’ll call you if anything changes.