Nerves were jangling hard in Europe last year, when the panic that had seen many tens of billions of dollars’ worth of deposits flee large US regional banks in a matter of hours suddenly began emerging in Europe.
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European banks had enjoyed a resurgence in profits and net interest margins from rapidly rising rates without yet suffering from any rise in bad debts. But equity investors were still valuing many at substantial discounts to net asset value, implying considerable distrust. And when the problem hit Europe, it crashed against a global systemically important bank (G-Sib) and not a smaller, local player.
We will never know what might have happened if a speedy weekend solution had not been worked out for Credit Suisse after it finally turned to the Swiss National Bank for emergency liquidity support. But the speed with which concern can spread could be seen in the falling stock price and rising credit default swaps spreads at Deutsche Bank.
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