The recent 14% fall in share prices of Germany’s Deutsche Bank has worried people, raising concerns about whether Deutsche Bank will be the next to fall.
Shares in Germany’s Deutsche Bank fell by 14% at one point on Friday, with other lenders also seeing big losses.
London’s FTSE 100 ended the day down 1.3%, while stock markets in Germany and France dropped even more sharply.
But US fears did not materialise.
After falling early in the day, the Dow Jones Industrial Average gained 0.4% and the S&P 500 rose almost 0.6%, while the Nasdaq ended 0.3% higher.
The rise came despite declines in shares of big banks such as JPMorgan Chase and Morgan Stanley.
In Europe, the banks hit by a sell-off from worried investors included Germany’s Commerzbank, which saw shares fall about 5%. France’s Societe Generale ended down about 6% while in the UK, Standard Chartered was the biggest faller, down more than 6%.
Deutsche recovered from its steepest losses but still closed more than 8% lower.
Russ Mould, investment director at AJ Bell, told the BBC the drop in Deutsche Bank’s share price, and a sharp jump in the cost of insuring against a possible default by the bank, was “indicative of a wider loss of confidence in the banking sector”.
“There’s a gathering fear that central banks may have overdone it with interest rate increases, having left them too low for too long,” he said.
Central banks slashed interest rates during the 2008 global financial crisis and again when the pandemic hit in 2020 as part of efforts to encourage economic growth.
But over the past year or so authorities have been raising rates sharply to try to tame soaring price increases.
These rate rises have hit the value of investments that banks keep some of their money in, and contributed to the bank failures in the US.
Share prices have fallen across the sector, as high-profile investors warn the collapses are symptoms of deeper problems in the system, with other pockets of distress yet to emerge.
Higher interest rates have also raised the possibility of recession, Mr Mould said, and if that happens, “banks will generally find it pretty hard going”.
Anyone doing analysis on the now-liquidated Silicon Valley Bank was confined to using stale financial data as of Dec. 31.
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A good capsule introduction. IMHO what will be decided this century is whether central banking itself (private control of interest rates) is the answer going forward.