The Alarming Decline of Bank Shares in Europe
The banking sector is experiencing a severe setback as investor worries about the industry’s financial stability resurface. Last Friday, Deutsche Bank’s shares saw a staggering decrease of 14%, while other lenders also suffered significant losses. Commerzbank in Germany plummeted by 8%, and Societe Generale in France, as well as Barclays and NatWest in the UK, fell by 7% and 6%, respectively.
The Root Cause of Share Price Falls
Investors are increasingly concerned about the recent demise of two US banks and the rapid takeover of Swiss bank Credit Suisse by its rival, UBS. Furthermore, higher interest rates, which banks have raised in the past year to combat rising inflation, have also led to a decline in share prices across the sector. The value of even safe investments that banks keep some of their money in has fallen due to these interest rate hikes, thereby making investors apprehensive.
The Dire Consequences of High Interest Rates
According to Russ Mould, the investment director at AJ Bell, central banks may have escalated interest rates too sharply after keeping them too low for an extended period. The possibility of a recession looms large with higher interest rates, which could make it challenging for banks to operate. Bloomberg News has reported that the US Department of Justice is scrutinizing UBS and Credit Suisse for their potential role in assisting Russian oligarchs to avoid sanctions.
Reassurances from Officials
Despite the mounting anxieties among investors, US Treasury Secretary Janet Yellen has come forward to assure them that the banking system in the US is secure. Bank of England Governor Andrew Bailey has also affirmed that the UK banking system is safe and sound. However, despite these assurances, the decline in bank shares is an ominous sign of the industry’s fragility and the potential for further turmoil.
Google News | Telegram
