The global banking sector has been sent reeling following the steep decline in shares of Deutsche Bank (NYSE: DB) and other major European lenders. In the wake of Credit Suisse’s recent emergency rescue, investors have become increasingly concerned about the stability of banks worldwide, leading to a sharp drop in share prices. Deutsche Bank, in particular, has lost nearly a fifth of its value since the start of the month and saw shares plummet almost 15% on March 24th, the lowest they’ve been in five months. As a result, the cost of insuring the bank’s debt against the risk of default has surged, with credit default swaps reaching their highest level in over four years.
The impact of this downturn is being felt across Europe, with Commerzbank, Societe Generale, and Banco de Sabadell also experiencing significant losses. Meanwhile, the Stoxx 600 index of European banks (excluding Credit Suisse and UBS) has seen a decline of over 5%, with a monthly drop approaching 20%.
The situation has caused concern among regulators, with Treasury Secretary Janet Yellen reassuring the public that measures would be taken to protect deposits if needed. European financial authorities have also reiterated that banks are now better regulated and capitalized than before the 2008 financial crisis.
This recent turmoil is the latest in a series of bank collapses, including those of Silvergate Bank and Silicon Valley Bank in the United States. Deutsche Bank has also been in the spotlight following the government-supported takeover of Credit Suisse by UBS and a U.S. Justice Department investigation into whether bankers helped Russian oligarchs evade Western sanctions.
Despite German Chancellor Olaf Scholz’s insistence that there is no reason to be concerned about Deutsche Bank’s profitability and stability, investors remain wary, and the future of the banking industry remains uncertain.