Mumbai, 27th March 2023: The European banking crisis shows no signs of abating as Deutsche Bank became the latest financial institution to experience a credit default. The bank’s shares plummeted over 14% on March 24 following the revelation, with another 6.5% drop the following day.
This comes after the bank’s credit default swaps (CDS), which provide cover to the bondholders of companies against any default, accelerated to reach a four-year high, increasing by 200 basis points, the most since the beginning of 2019. Experts have been warning of the bank’s precarious position, with investors’ attention having been focused on Deutsche Bank for some time now.
Deutsche Bank’s woes come amid a growing crisis in America, where two banks, Silicon Valley Bank and Signature Bank, have already sunk, causing fears that other banks may soon follow. The crisis was attributed to an increase in interest rates, which led to China’s Central Bank warning of the impact of such rates on the economy of developed countries. It is feared that up to 110 banks in America may become embroiled in similar crises if the situation does not improve.
The banking crisis is not confined to America and Europe, with Credit Suisse Bank also having experienced significant difficulties recently. The Swiss bank was sold to Union Bank of Switzerland (USB) following its financial crisis. Deutsche Bank had been attempting to improve its working and change its leadership to rectify the situation. However, this has not had the desired effect, and the bank is now facing an uncertain future.
The gravity of the situation is highlighted by the fact that the Federal Reserve of America has provided financial assistance of $250 billion to the banks to tackle the crisis. The fate of Deutsche Bank and other banks facing similar difficulties is uncertain, and investors are watching events with increasing trepidation.