Stock Markets Fall on Deutsche Bank Risk

Stock Markets Fall on Deutsche Bank Risk.

For the second day in a row European, UK and North American stock markets have fallen. The UK is down just under 2% in the last two days, German stock markets are down nearly 3% and French stock markets down around 2.5%.

There are major concerns about the German banking giant Deutsche Bank. The bank has rumoured cash flow problems and added to the $14 billion fine levied by the US two weeks ago, markets are starting to become concerned.

Why can't Deutsche Bank be bailed out by the German Government?

The simple problem is it is European law within the Eurozone that banks cannot be bailed out. German Chancellor Angela Merkel has already very publicly denied the Greek government bailing out its banks and the Italian government bailing out its banks too. Even in the press over the weekend Merkel was quoted that there will be no bailout and that banks should stand on their own two feet and arrange alternative financing.

In previous comments, it has been suggested that Merkel had been rumoured to suggest that if a European bank fails then the people i.e. the general public should also shoulder some of the burden. In short, the German financial services compensation scheme would take over.  Thanks for that!

Comment

Our concern is the repercussions that if one major German bank is allowed to fail will confidence then fall with other leading German banks? The huge selling off of banking stocks in the market this week so far underlines lack of investor confidence in the same.

As a knock-on effect to that, what about creditors that Deutsche bank has borrowed millions of euros from such as the City of London? Apart from financial losses to institutions across Europe this will also mean a total lack of confidence in offering further finance to not just German banks but Italian banks, Spanish banks, French banks et cetera. By allowing a German bank to collapse we believe that it could also lead to the collapse of the euro and therefore we believe there will be a massive U-turn to bail out Deutsche bank if alternative commercial finance cannot be secured.