European banks could face billions of dollars in fresh writedowns after the US government today was forced to provide an $85bn (€59.9bn) lifeline to AIG, the world’s largest insurer. At the end of June, 69% of AIG’s total credit derivative exposure of $441bn was to European financial institutions.

According to one analyst close to the situation, BNP Paribas, Royal Bank of Scotland, Société Générale and UBS faced massive losses in the event of a bankruptcy or government bailout, which could force some of the affected institutions to make additional capital raisings. According to the latest available filing, $307bn out of AIG's total credit derivative exposure was to European institutions.