Other professional observers of the banking sector have also basically said "don't worry, big banks are in good financial health." But keep in mind that many of these same observers were caught off guard by what's already occurred with failed banks.Įlliott Wave International has been warning of this persistent optimism. Yet, at least one strategist expressed this (Yahoo! Finance, March 24):Įverything 'really is fine with Deutsche Bank' due to capital levels, says
The price of Swiss lender's credit default swaps climbs to record high this weekĭuring the same weekend that news item published, Credit Suisse collapsed, and the Swiss government brokered a deal which involved rival UBS buying Credit Suisse for $3.2 billion.Īnd continued worries about the global banking sector are not confined to Credit Suisse.ĭeutsche Bank shares slide after sudden spike in the cost of insuring against its default Since then, the price of those CDSs have approximately tripled, climbing north of 1000.Īs a March 18 news item from The Financial Times noted:Ĭost of insuring Credit Suisse debt dwarfs that of other banks As shown, CDS prices have exceeded every high-water mark set during every crisis of the past 15 years. Just last month, Credit Suisse - the once-venerable Zurich-based global investment bank that has warned about for years - saw prices for its credit-default swaps (CDS) shoot past 300, indicating investors' increasing belief that the bank will default. With that in mind, back in November, our Global Market Perspective showed this chart and said: In a nutshell, credit-default swaps are insurance against a debt default: The higher the perceived risk of default, the higher the premiums. Today, these financial derivatives are in the news again. As you may recall, so-called CDSs were all over the news then. Credit-default swaps were invented in the mid-1990s but a lot of people did not become aware of them until around 2000, and that awareness increased dramatically during the 2008 financial crisis.
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