A gauge of credit risk in the euro area banking system jumped to its highest level since mid-July on Tuesday, in line with rising levels of investor panic over the risk of crisis contagion at three U.S. banks in less than a week.
The so-called FRA-OIS spread, which measures the difference between the euro area’s three-month forward rate agreement and the overnight index swap, jumped to 21.08 basis points on Tuesday, the highest since July 19, 2022.
European banks have been hit especially hard by the Silicon Valley Bank weekend crisis.
While analysts say there is little risk of real contagion from SVB, the bank’s crisis has raised doubts among investors about the strength of banks’ balance sheets, especially now that interest rates are rising.
An index of European bank stocks has lost more than 11% of its value in the last three trading days alone, while bank stocks around the world have taken a hit.