After the collapse of Switzerland’s second-largest bank, Credit Suisse, investors looking for the next bank failure fixed their eyes on Deutsche Bank, Germany’s largest bank.
The tell-tale signs of blood in the water appear in a bank’s share price and the cost of its credit-default swaps (CDS). Equity investors last week sold off Deutsche Bank shares as credit investors drove up the price of its CDS, which are insurance contracts against a default on its debt. And in today’s market, when investors get spooked, depositors are quick to follow.
Like America’s Federal Reserve, the European Central Bank (ECB) is also hiking interest rates in an attempt to tame runaway inflation, after years of forcing interest rates down near zero and buying up bonds to drive up lending, spending and asset values. And like in the United States, European investors and depositors are rushing away from any banks that show signs of weakness—leading to the failure of Switzerland’s second-largest bank, Credit Suisse, on March 20….