banking sector in turmoil

Banking scare erupts and panic spreads

Waves of bad news keep hitting the banking sector.  Following the failure of Silicon Valley Bank in the US and the forced takeover of Credit Suisse, shares in Deutsche Bank fell sharply Friday (March 24) after a jump in default insurance costs.

Deutsche Bank shares, which have lost more than a fifth of their value so far this month, closed down 8.5% on Frankfurt’s stock exchange after falling as much as 14%. The cost of insuring Germany’s largest lender’s debt against the risk of default shot to more than four-year high, based on data from S&P Market Intelligence.

Rising costs on insuring debt were also a prelude to Swiss lender Credit Suisse’s government-backed rescue by rival UBS. In the Swiss market, Credit Suisse lost about 5.2% and UBS Group ended lower by 3.55%.

Other major European banks also fell Friday, with France’s Societe Generale off 6%, and Austria’s Raiffeisen down 7.9%. Europe’s Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, closed 3.8% lower as investors seemingly failed to shake off worries related to the financial sector crisis and its possible spillovers despite reassurances by officials.

German Chancellor Olaf Scholz assured on Friday that the banking system in Europe remains “stable.”  after being asked if the lender was the “new Credit Suisse”. “There is no reason to be concerned about it.”

European Central Bank head Christine Lagarde told  a eurozone summit in Brussels that euro zone banks were resilient because they have strong capital and liquidity positions, but that the ECB could provide liquidity if needed. The Bank of England was also firm in its belief there is still no systemic risk.
Across the Atlantic, US Treasury secretary Janet Yellen on Thursday (March 22) said regulators were “prepared to take additional actions if warranted” to ensure the safety of bank deposits.

Central banks in the eurozone, US and UK have all pushed ahead with interest rate rises this month judging that inflation posed a bigger threat to the economy than recent turmoil in the banking sector.