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Shares of Germany’s largest bank Deutsche Bank plunged on Friday as investors fretted that regulators and central banks have yet to contain the worst shock to the sector since the 2008 global financial crisis.
Wider indicators of financial market stress were also flashing, with the euro falling against the dollar, euro zone government bond yields sinking and the costs of insuring against bank defaults surging despite assurances from policymakers that the global banking system is safe.
In the latest effort to reassure investors, the U.S. Treasury said the Financial Stability Oversight Council – which comprises the heads of various U.S. regulators – agreed at a Friday meeting that the U.S. banking system is “sound and resilient.”
The meeting was chaired by U.S. Treasury Secretary Janet Yellen, whose comments are being closely watched by markets for an indication of how far authorities are willing to go to shore up the banking sector after the collapse of Silicon Valley Bank and Signature Bank (SBNY.O) earlier this month.
Earlier in the day, Germany’s Deutsche Bank (DBKGn.DE) was thrust into the investor spotlight and slumped 8.5% alongside a sharp jump in the cost of insuring its bonds against the risk of default. The index of top European bank shares (.SX7P) ended down 3.8%.
“The market is suspicious, or weary is maybe a better way to put it, that there are more problems out there that have come forth,” said Joseph Trevisani, senior analyst at FXstreet.com.
“It takes time. It’s going to have to be weeks without any problems in the banking system before markets will be convinced that it’s not a systemic problem.”
Banking analysts stressed the difference between Credit Suisse AG (CSGN.S) – which needed a rescue by bigger Swiss peer UBS AG – and Deutsche Bank, saying the German bank boasted strong fundamentals and profitability.
