As we saw, cost of insuring Deutsche Bank debt against default leapt 12bp, with credit default swaps (CDS), used to insure debt, now implying a 24.5% probability that the bank will default on its subordinated, or junior debt, while on senior debt the probability rose to 17%. Analysts say this reveals the tide has turned for European banks and systemic risk is rising along with concerns over the impact on the eurozone recovery, according to Deutsche Bank strategist, Marcos Arana. The worst case scenario is interbank stress could reignite a negative feedback loop; government borrowing costs rise, increasing bank funding costs even further. Chief economist of Deutsche Bank, David Folkerts Landau says "ultimately, it is only the ECB that is holding Europe together. Outright Monetary Transactions and QE makes government debt sustainable; if the ECB was to step back from that you would have a massive sovereign debt crisis".
As we saw, cost of insuring Deutsche Bank debt against default leapt yesterday, with credit default swaps (CDS), used to insure debt, now implying a 24.5% probability that the bank will default on its subordinated, or junior debt, while on senior debt the probability rose to 17%. Analysts say this reveals the tide has turned for European banks and systemic risk is rising along with concerns over the impact on the eurozone recovery, according to Deutsche Bank strategist, Marcos Arana. The worst case scenario is interbank stress could reignite a negative feedback loop; government borrowing costs rise, increasing bank funding costs even further. Chief economist of Deutsche Bank, David Folkerts Landau says "ultimately, it is only the ECB that is holding Europe together. Outright Monetary Transactions and QE makes government debt sustainable; if the ECB was to step back from that you would have a massive sovereign debt crisis".