Looks Like Deutsche’s The Next Big Bank In Trouble

Looks Like Deutsche’s The Next Big Bank In Trouble

11 months ago2 mins

Mentioned in story

Deutsche Bank’s stock took a beating on Friday, as the cost of insuring against the bank's failure hit new heights.

What does this mean?

Credit Suisse and Deutsche Bank have both weathered their fair share of financial storms. But after surviving the European banking crisis a decade ago, Credit Suisse has vanished from the scene and left its former companion in the spotlight. Maybe it's only natural, then, that worried investors are shifting their focus to Deutsche Bank now, especially given that the price of its credit default swaps – basically what investors buy to protect themselves against the bank’s failure – have spiked in recent days.

Deutsche Bank credit default swaps

Why should I care?

For markets: “Nein” to a stitch in time.

This might have European investors on edge: see, while the Federal Reserve and the Swiss central bank tamed their own brewing storms very quickly, the European Central Bank (ECB) isn't famous for being quick on its feet. What’s more, the ECB's head honcho recently brushed off concerns about big banks in the region, saying that there’s nothing to worry about. Let’s hope that’s right – because if there’s one thing we know from past crises, it’s that a speedy response is vital.

Deutsche Bank stock
Source: Google Finance

The bigger picture: Banking’s built different.

Authorities can keep insisting the banking system’s safe until they’re blue in the face, but when a confidence crisis sets in, it's hard to shake. See, banking’s a unique industry: you won’t pass up on a Coke or drive past a McDonald’s because those firms’ stock prices are down – but when a bank’s shares take a dive, folk start worrying. That can lead to customers pulling their deposits, as well as prompting other banks to freeze lending – and with both of those out the window, banks have no banking to do, and they can run aground pretty quickly.



All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG