The names of those European banks that needed financial rescues in the last two weeks may not be familiar to many Rhode Islanders.

But they are important to understanding the slowdown under way in the global economy that is affecting the ability of the United States to weather its own banking crisis. The crisis in confidence in the banking systems on both sides of the ocean could deepen a recession worldwide.

That's because the markets, especially in Europe and the United States, have become interconnected. Goods and services have to be exchanged for it to work.

For that market to function, capital must flow freely to finance trade, expansion and the daily grind of commerce that creates jobs and wealth. When banks in the United States and Europe -- weighed down by soured assets from bad investments -- stop lending to each other and to credit-worthy borrowers, the whole system can freeze, strangling the economy.

That's the danger now.

If the names of the above-mentioned European banks don't mean much to Rhode Islanders, here's another one that may hit closer to home -- the Royal Bank of Scotland.

The Royal Bank, based in Edinburgh, acquired Providence-based Citizens Financial Group in 1988. Citizens runs what has expanded into one of the 10 biggest banks in the United States, with branches on seemingly every corner in Rhode Island.

The Royal Bank has already done a sizable write-down of bad assets and completed a round of raising fresh capital. The huge, international company also has laid off 7,200 of its 170,000 employees worldwide and is continuing other cost-control programs.

No one is suggesting that the Royal Bank is in danger of failing or needs a rescue.

But with so many unsettled questions about the continuing economic slowdown that causes deterioration of assets, it's hard to tell how much work the Royal Bank will still have to do.

Some analysts in London have told investors that the Royal Bank, the second-biggest bank in the United Kingdom, will need to raise fresh capital and continue to write down troubled assets.

By one estimate from Panmure Gordon & Co., the Royal Bank may need to raise billions of dollars in capital, its cushion on the balance sheet to protect against losses. Other banks have had trouble raising capital in the public markets.

A spokesman for the Royal Bank declined comment.

While its headquarters is overseas, the Royal Bank may get some help in unloading troubled assets from the U.S. Treasury. According to the bailout bill considered by Congress last week, foreign-owned banks that have a significant presence in the United States would be able to participate in the program. Colin McLean, chief executive of Edinburgh-based SVM Asset Management, told the Sunday Herald in London that the Royal Bank could unload "billions" of troubled investments to the U.S. government.

Another concern about the Royal Bank was raised last week after Fortis, the Belgian financial services firm, had to be bailed out. Fortis joined the consortium organized by the Royal Bank last year to buy ABN Amro for $101 billion.

Fortis received a $16-billion rescue from the governments of Belgium, the Netherlands and Luxembourg after the company's stock lost one fourth of its value amid concerns it would have trouble replenishing capital depleted by the acquisition. In return, Fortis agreed to divest much of its stake in Amro.

That concern pushed the Royal Bank's stock down 20 percent during trading on the London exchange. The stock later recovered some of the value it lost, but it refocused attention on the acquisition and whether the Royal Bank would have a hard time swallowing its piece of Amro.

"This deal's been a little short of disastrous," Alex Potter, an analyst with the investment bank Collins Stewart, told The Wall Street Journal. "They timed it horribly and paid too much."

The Royal Bank previously said it is in the process of integrating 35,000 employees from Amro and expects the consolidation to be completed in 2010.

Citizens, the flagship of the Royal Bank in the United States, remains healthy. Citizens officials said the company never participated in subprime lending and continues to expand its small- business and commercial portfolio.

RBS Citizens NA, the corporate name of Citizens in the United States, received a four-star rating out of a possible five stars, according to a second-quarter review by Bauer Financial, an independent ratings agency in Florida. Bauer said RBS Citizens had $120 billion in assets at the end of the second quarter and had quarterly income of $198.9 million.

RBS Citizens had a tangible capital ratio, a measurement of a bank's strength, of 6.9 percent, which is in the middle of the banks surveyed. RBS Citizens' nonperforming assets as a percentage of average tangible assets was 0.572. By comparison, Bank of America, a 3 1/2-star-rated bank, had a percentage of 0.671 and Sovereign Bank, which was rated 3 stars, had a ratio of 0.809.

All that indicates that Citizens appears to be sound.

But sometimes a parent's problems can be visited on the offspring. It's still unclear how the issues at the Royal Bank could affect Citizens.

The banking crisis on both sides of the ocean still has a ways to run. The deepest problems are being exposed.

In Europe, Iceland nationalized its third-largest bank, Glitnir, and injected millions. In England, Bradford & Bingley was nationalized while its branches and deposits were sold to Spanish bank Banco Santander SA. Hypo Real Estate, one of Europe's largest lenders, was bailed out by a consortium of German financial institutions.

Late last week, leaders in Europe were trying to fashion a rescue plan for troubled banks that in many ways was similar to the one being negotiated in Washington.

The names may be different, but it's one world with the same crisis.

jkostrze@projo.com / (401) 277-7330

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