By Aakansha Malia 2:49 pm PST

Fear of a banking crisis looms in Europe as Germany’s largest bank, Deutsche Bank, shares tumbled by 14% on March 24. This contributed to investor nervousness after a series of failures from US banks and the emergency rescue of Credit Suisse this week. The industry sent Deutsche Bank’s shares slumping the most in the last three years. Also, it led to a rise in the cost of financial derivatives known as credit default swaps that insure bondholders against the bank defaulting on its debts.

The rising cost of insuring debt had already started before UBS rescued Credit Suisse. Shares in UBS and Credit Suisse were 3.6% and 5.2% down, respectively. Europe’s Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, closed 3.8% lower. The index is down 18% from its high in late February. London’s bank-heavy FTSE 100 index closed down 1.3%. Crosstown rival Commerzbank, Spain’s Banco de Sabadell, and France’s Societe Generale also saw steep drops.

Despite being the worst performer in an index of European bank stocks, German Chancellor Olaf Scholz assured citizens on March 24 that there was ‘no reason to be concerned’ about Deutsche Bank. Speaking to reporters in Brussels, he said, “It’s a very profitable bank.” Meanwhile, the EU leaders in Brussels for an EU Summit issued a joint statement describing the European banking system as “resilient, with strong capital and liquidity positions.” Remember, the German bank is one of 30 significant banking institutions worldwide. So international rules require it to hold higher levels of capital reserves because its failure could cause widespread losses.

The same remarks were echoed by US President Joe Biden early on March 25 in Ottawa, where he reassured investors. He said, “The banks are in pretty good shape. I think it’s going to take a little while for things to calm down, but I don’t see anything on the horizon that is about to explode.”. The announcement came after BBC reported that US Treasury Secretary Janet Yellen convened an unexpected meeting on March 24 with regulators on financial stability. This meeting came after US Federal Reserve reported the use of an emergency lending program for banks that the US central bank created this month has increased over the past week.

However, the announcement about Deutsche Bank’s shares caused panic among investors as they feared it would pay back one of its bonds five years before the maturity date. Some bonds of Deutsche Bank were also sold off. Its 7.5 percent Additional Tier-1$ bonds fell nearly 3 cents to 72.868 cents on the dollar, pushing the yield up to 24%. Deutsche Bank had said on March 24 that it would redeem $1.5bn in tier 2 bonds early.

Investors remain uncertain whether Credit Suisse’s emergency rescue will be enough to contain the stress in the banking sector. The Wall Street Journal on March 24 quoted Autonomous Research analysts Stuart Graham and Leona Li saying, “To be crystal clear, Deutsche is NOT the next Credit Suisse; the bank is solidly profitable, has the strongest capital ratios since the late 1990s, and has lower interest-rate risk than some US regional banks.”

Deutsche Bank reported 10 quarters of profit consecutively after completing a multibillion-euro restructure that began in 2019 to reduce costs and improve profitability. The lender closed at an annual net income of 5 billion euros last year, the highest in its history.