According to economists and politicians, Europe has learned from the financial crisis and is now in a good position to withstand further strain on its banking system. But things are bad for the large German bank Deutsche Bank, which can provoke a further crisis.
The collapse of the US-based Silicon Valley Bank and several other regional lenders in early March raised fears of a collapse of the EU banking system, aided by the emergency rescue of Credit Suisse by Swiss rival UBS.
But on March 25, the shares of Europe’s largest German Deutsche Bank fell by 15%. According to Reuters, Deutsche Bank credit default swaps (CDS) have jumped sharply — the cost of insuring the bank’s debt against default has risen by 18%, reaching a four-year high.
Deutsche Bank has had long-standing structural problems since 2008?
Recall that Deutsche Bank has had long-standing structural problems since 2008, which have not been solved until now. The increase in the bank’s CDS could have been caused by the announcement of the early repayment of Tier 2 bonds. Formally, this cannot be called a signal of the bank’s weakness, but given the problems of Deutsche Bank, the market perceived them that way.
The bank’s problems have been forming since 2008, and the main one was the unprofitable investment business, which was singled out and then folded, in addition to various penalties imposed by regulatory authorities. The bad reputation of the bank and unsolvable problems for decades can cause a nervous reaction of customers who can rush to withdraw their deposits from Deutsche Bank at any moment.
Will Deutsche Bank be able to avoid collapse like American banks?
The German authorities assure that Deutsche Bank is in good condition, and it has no problems at the moment. But is it worth believing the official statements of the German government? After all, the American authorities also convinced that the banking system is in good condition and it has no structural problems.
Therefore, it is not necessary to deny the probability of the fall of one of the largest European banks.