European Bank Stocks are plummeting as fears rise

EVERY European bank stock is down so far, as there are growing concerns over the stability of the European banking system.

Will the banks fail again?

At a moment like this, it’s reasonable to ask whether the banks are going to ask for another massive bailout. A bailout would surely trigger massive public outrage, since the banks have had billions of taxpayer money shoveled their way, and still seem unable to make things work.

As reported by the Financial Times, “All of Europe’s major banking stocks are in the red on Tuesday, as investors deliver a decidedly gloomy verdict on the state of the continent’s lenders in the wake of EU-wide stress tests, a private sector rescue deal for Italy’s oldest bank, and the continued squeeze from negative central bank interest rates.”

Italian Prime Minister Matteo Renzi has expressed confidence in the banking system, the kind of statement that usually precedes a crisis. If you hear a politician say, “The fundamentals of the economy are strong,” then it’s time to really panic.

Monte dei Paschi, Commerzbank, Alpha Bank, banca Popolare del Emilia, Eurobank, and Banco Popolare all down more than 6%

33 of the 34 banks that recently participated in a stress-test (a test of how banks would handle a crisis), have lost more than 33% of their value in the past two years. That type of slow and steady decline can quickly turn into a collapse seemingly out of nowhere.

Sascha Steffen, Professor of Finance and Chair of Financial Markets at the University of Mannheim, as well as Head of The Centre for European Economic Research (ZEW) Research Department, recently suggested that the European Banking industry on the whole needs $1 TRILLION in new capital to restore confidence.

With European economies still stagnating, that kind of money would have to come from the European Central Bank (ECB), seemingly the only major institution in Europe that can take action with any swiftness.

The backdrop to the European banking sell-off is concerning. Stagnating growth in the major industrialized nations, slowing growth in China, and rising world instability all raise the odds of a new crisis. While the world may muddle through, the system has become much more fragile, which could lead to severe world economic crisis.

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