The supervisor of ECB (European Central Bank), Andrea Enria, said this Tuesday (28), that the recent volatility in the shares of the Deutsche Bank was worrying, as it showed that investors are nervous and may be frightened by movements in the Credit Default Swaps (CDS, a kind of insurance against defaults) market.
Shares in the German bank plummeted on Friday as the cost of insuring against the risk of default jumped to the highest level in more than four years, intensifying concerns about the health of the European financial sector.
The ECB supervisor said the CDS market was relatively small and illiquid, but a sell-off could have wider ramifications for the much larger equity market.
“What really worried me was the nervousness, the unrest I noticed in the market and among investors,” Enria said at a conference in Frankfurt.
“There are markets like single-name CDS that are very opaque, very shallow and illiquid, and with a few million (euros) fear spreads to the trillion-euro banks and contaminates stock prices and also the deposit outflows”, explained the member of the ECB.
Prices for Deutsche Bank CDSs have eased since Friday, but remain well above levels prior to the collapse of Silicon Valley Bank and the sale of Credit Suisse, the catalysts for the recent turmoil in the banking sector.
Source: Moneytimes
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