Deutsche Bank and UBS have been hit by a sudden spike in the cost of default insurance © AFP / Daniel Roland

Shares of European banking giants plummeted on Friday, with Deutsche Bank and UBS Group dropping 13% and 6%, respectively, after a sharp spike in credit default swaps was recorded on Thursday night.

Shares of other lenders with high exposure to corporate lending were also down, with Commerzbank declining by 9% and Societe Generale shedding 7%.

Credit default swaps, a form of insurance for corporate bondholders against a company’s default, surged to 173 basis points late on Thursday from 142 basis points the previous day, marking the highest level since they were introduced in 2019.

Major concerns among investors have been evoked by the emergency rescue of the embattled Credit Suisse by the Swiss government. Part of the deal included the write-off of $17 billion worth of Credit Suisse’s AT1 bonds. The move angered many debt-holders, who have been left empty-handed, and has revealed yet another banking-sector risk.

Investor fears have been exacerbated further by the tightening of monetary policy, as the US Federal Reserve and the European Central Bank raised interest rates once again this week despite the banking turmoil.

Across the Atlantic, shares of US banking giants like JPMorgan Chase, Wells Fargo and Bank of America edged about 2% lower at the start of trade on Friday, while regional lenders, which are at the center of investor concerns, were mixed.

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