Deutsche Bank has fallen 30% in the past few weeks. It collapsed sharply on Friday, and the German Chancellor has had to reassure investors over the weekend that it is a strong bank.
Will Deutsche be the next collapse/restructure? Probably not, but this does show the continuing and growing pressure on the banking system among the major Western economies. No bank is immune in the current climate.
The forces that lead to the crisis so far seen, of higher rates and depositor uncertainty, only continue to grow.
Regional banks in the US will not be protected under the new depositor protection program. This is only designed for really the rich and powerful banks with a similar clientele.
In Germany, it is highly unlikely the German government would allow the downfall of Deutsche, but this does not mean it will not teeter on the edge for a period.
Large European depositors may also, like American regional bank depositors, be starting to recognise that perhaps the only safe place for their cash is now in American, perhaps Swiss, too-big-to-fail banks. Were this mentality to take hold across much of the western economies, then there could be a fast build-up of transfers toward key banks globally.
In fact, many banks themselves may be beginning to think this way.
We know there have been very large banks basically go under. That government rescue plans for depositors will only apply to a very select group of banks. Deutsche is most probably on this list, but that it is also under significant pressure at the moment, just goes to show how at risk many other banks, large and small around the world, may well be.
The response of markets will be further hesitation around banks globally. Especially, in the West. And a possible continuation of safe-haven flows toward both the US dollar and Gold.
Equity markets will attempt to rally at first this week on the idea that somehow buying stocks on the back of lower interest rate expectations, probably ill-founded to start with into a prolonged recession, is a good one.
Expect a good deal of volatility, but we may well end the week on an even weaker note than we did last.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
