Tumbling stocks dragged other big banks across Europe down, fueling fears of a banking sector crisis.
Shares of Deutsche Bank have fallen sharply, hurting other major European banks and reigniting fears of a deepening crisis in the banking sector.
Germany’s largest lender was down more than 14 percent on the Frankfurt stock exchange in Friday morning trading before falling back in the afternoon and trading 9.5 percent lower, at 8.43 euros ($9.07) per share.
Tumbling bank shares dragged markets across Europe on Friday, with Germany’s Commerzbank losing 7.5 percent, France’s Societe Generale 5.9 percent and Austria’s Raiffaisen 5.9 percent.
Deutsche Bank is one of 30 banks considered major financial institutions worldwide, so international rules require it to maintain higher levels of capital reserves because its failure could cause widespread losses.
The long-troubled bank has become the center of investor concerns after the collapse of three regional US lenders and the Swiss government-brokered takeover of Credit Suisse by rival UBS sparked market turmoil this month .
The cost of insuring the bank’s debt against the risk of default, known as credit default swaps, has skyrocketed as investors become concerned about the health of the banking sector.
Rising costs of insuring debt were a prelude to UBS’ bailout of Credit Suisse. That hastily arranged takeover on Sunday and jitters over Credit Suisse’s long-running problems led to its stock going to shit and customers pulling their money out.
When asked if Deutsche Bank could be the next Credit Suisse, German Chancellor Olaf Scholz said: “There is no cause for concern.”
Scholz expressed confidence in Deutsche Bank, saying it had “modernized and organized the way it works. It is a very profitable bank.”
Speaking in Brussels after a summit of EU leaders, he also said the European banking system was “stable” with strict rules and regulations.
Deutsche Bank said on Friday it would prepay $1.5 billion in Tier 2 bonds. Such a move is normally designed to boost confidence in a bank, although shares plummeted anyway.
The bank was hit by a series of problems related to its attempts to compete with Wall Street’s investment banking giants before the 2008 global financial crisis.
But it initiated a major restructuring, cutting thousands of jobs and focusing more on Europe, and it is financially sound again. Last year it posted its highest annual profit since 2007.
European officials said banks in the European Union’s regulatory system, which Credit Suisse does not belong to, are resilient and have no direct exposure to California’s bankrupt Silicon Valley Bank and little to Credit Suisse.
Attempts to strengthen banking regulation in recent years “enables us all to say that European banking supervision and the financial system are robust and stable and that we have a resilient capitalization of European banks,” Scholz said.
European leaders, who downplayed any risk of a possible banking crisis at their summit on Friday, said the financial system is in good shape as they demand broad compliance with stricter requirements to keep cash on hand to cover deposits.
International negotiators agreed to those rules after the 2008 financial crisis, triggered by the bankruptcy of US investment bank Lehman Brothers. US regulators exempted medium-sized banks, including Silicon Valley Bank, from those safeguards.