Will Share Prices of Global Banks Breakdown Together?

 

What he forgot to add is that inflation must always end in a crisis and a slump, and that worse than the slump itself may be the public delusion that the slump has been caused, not by the previous inflation, but by the inherent defects of “capitalism”—Henry Hazlitt 

 

Will Share Prices of Global Banks Breakdown Together? 

 

The index of stocks of Europe’s banks broke down to a record low last week, amplifying risks of the doom loop.  

 

The doom loop, according to SWFI, “In the context of economics, a doom loop is a negative spiral that can occur when banks hold sovereign bonds and governments with weak public finances bail out such banks. European area governments are growing concerned about the doom loop between large banks and governments. Governments are exposed to bank risk, as well as banks are exposed to sovereign risk by holding government bonds in their portfolios. Other names for the doom loop include the “diabolic loop” and “vicious circle”.” 

 

Interestingly, shares of the US counterparts (the KBW Index  or the BKX), which barely participated in the recent record run by its key indices, weakened too… 

 

Banks provide the core of financing in Europe compared to the US, which increasingly relies on capital markets.  

 

The fragility of shares of banks encompasses Japan’s Topix Bank Exchange Index as well as Hong Kong’s Hang Seng China H Financial Index, which incidentally has been adrift close to the support, or multi-year level low levels. 

  

COVID and its political responses have not been responsible for the structural vulnerability of bank shares. Instead, the trend has been enhanced and accelerated by it. 

 

And the near synchronous price actions exhibit the structural interconnectedness brought about by financial globalization that comprises the offshore dollar (Eurodollar) system.  

 

Of course, because the domestic banking system interacts with its global peers, and which underlying financial and monetary policies, likewise, resonate with them, the share prices of local banks manifest the same infirmities. The PSE financials are, like their brethren, also ambling at multi-year lows. 

 

Will global bank shares breakdown together? 

 

Decoupling, anyone?