The stock markets are overvalued, Dubai crisis likely to be the catalyst to trigger major correction

And while UK banks, such as Standard Chartered, HSBC (HBC), Royal Bank of Scotland (RBS) and Barclays (BCS) are much more exposed to Dubai World, with a total of more than $30 billion in default risk according to J.P. Morgan's note, U.S. banks have extensive dealings with UK institutions. Those include trading and guaranteeing debt, which could translate into losses for U.S. banks.

There's also U.S. banks' interactions with their German counterparts. Dubai has loaned a lot of money to Eastern European nations, as has Germany. Any losses from defaults there could expose U.S. banks to some risk.

Finally, there's the impact of already reeling commercial real estate markets worldwide.

"Dubai may have to unload some very prestigious properties at distressed prices, and this will drive the price of all commercial real estate lower," said Bove. "That would clearly be a problem for American banks."

SHOOT: The article summarises the situation best with this comment: 'the risk of default will put a damper on all commercial credit markets.'

clipped from money.cnn.com NEW YORK (CNNMoney.com) -- The news that the sovereign wealth fund of Dubai requested a postponement of billions of dollars of debt this week could pose a big problem for U.S. banks. According to CMA DataVision, which tracks credit markets, there's a 35.82% probability that Dubai will default on that debt. New York-based Citigroup (C, Fortune 500) has the most exposure to default risk at Dubai World, which a J.P. Morgan (JPM, Fortune 500) equity research note estimated at $1.9 billion. Citigroup declined to comment. While other major banks in the United States are believed to have little direct exposure, the ripple effect could be more crippling, according to Richard Bove, a bank analyst with Rochdale Securities. "There could be huge indirect exposure," he said. "One has to assume that U.S. banks will be hurt." J.P. Morgan declined to comment, while Goldman Sachs (GS, Fortune 500) and Bank of America (BAC, Fortune 500) were unavailable for immediate comment.