Further tremors in the international banking market have led to a dramatic drop in the stock value of German lender Deutsche Bank, CNBC reported.
By early afternoon Friday, Germany’s largest bank had seen its stock slide 14 percent as investors sold off for a third consecutive day. The retreat comes on the heels of the emergency rescue of Credit Suisse by UBS and originated with the sudden collapse of San Francisco’s Silicon Valley Bank. Credit default swaps, sold to insure against the value of the bank, leapt in popularity as the Deutsche Bank lost a fifth of its overall value on the Frankfurt market over the past month.
Deutsche’s broad decline led to sell-offs for other leading European banks including Commerzbank, Societe Generale, Barclays, and BNP. Despite the German lender reported 10 straight quarters of profits since 2019, investors are bearish about the potential for regulators around the world to have overlooked vulnerabilities in the lending and cash reserve statuses of their largest banks.
The U.S. Federal Reserve on Thursday raised the national interest rate a quarter of a point to five percent, the highest level seen since 2007. The further tightening of monetary policy will increase the difficulty for U.S. homebuyers and businesses to take out and maintain loans. The Fed’s latest move caused former White House economic advisor Gary Cohn to declare that the national bank had “lost control” of the economy.
World economic leaders are trying to contain the fallout from a selling frenzy that evoked memories of the 2007 housing market collapse which led to the 2008 Great Recession. The demise of SVB in San Francisco led New York regulators in mid-March to pull Signature Bank from the market over fears of an imminent collapse. In response, progressive lawmakers like U.S. Senators Bernie Sanders and Elizabeth Warren have placed the blame on rollbacks of banking regulations over the last decade and introduced legislation to prevent bank executives from serving on the boards of Federal Reserve divisions.