Shares of Deutsche Bank, Germany’s largest lender, experienced a significant drop on Friday, causing a ripple effect across other major European banks. The fall came amidst concerns about the stability of the global financial system, leading investors to sell off shares in banks. Deutsche Bank’s shares closed down 8.5% on the German stock exchange after dropping as much as 14% earlier in the day.
The steep decline in Deutsche Bank’s share price was linked to a rise in the cost to insure bondholders against the bank defaulting on its debts. Despite the worrying news, German Chancellor Olaf Scholz expressed confidence in the bank, saying that there was no cause for concern.
Deutsche Bank is one of 30 globally significant financial institutions, subject to international regulations requiring it to maintain higher levels of capital reserves. This means that the bank is better equipped to weather financial shocks than many smaller banks.
However, the drop in Deutsche Bank’s share price had a knock-on effect on other major European banks. Germany’s Commerzbank saw its shares close down 5.45%, while France’s Societe Generale fell by 6%. Austria’s Raiffeisen experienced the sharpest decline, with its shares closing down 7.9%.
Despite these drops, European leaders at a summit on Friday reassured investors that the financial system remained stable. They highlighted that the tougher regulations introduced after the 2008 financial crisis, which require banks to keep more cash on hand to cover deposits, had strengthened the system’s resilience.
In conclusion, the drop in Deutsche Bank’s share price had caused concerns about the stability of the European banking system. However, the stricter regulations introduced since the 2008 financial crisis have made the system more robust and less prone to sudden shocks. Nonetheless, investors and regulators must remain vigilant and proactive in identifying and addressing any potential weaknesses in the system.