Europe is bleeding, and Greece is not the only reason. The entire banking sector is just as exposed to risk as it was at the beginning of the financial crisis. Or perhaps even more so now, because its market situation is even more tense than in the months leading up to the Lehman Brothers collapse. This event engulfed the world in financial problems back in September of 2008.
The exacerbated situation is reflected in indexes that pool credit default swaps (CDS) that cover subordinated debt and senior debt across the European banking sector. Yesterday, the swap index for subordinated bonds rose from 543 to 552 basis points, a record high that was not close even before the Lehman debacle.
Similarly, the senior debt index rose, too, approaching its record high and ending at 296 basis points. These figures point out a prevailing lack of confidence, considering that credit default swaps rise in value when investors use them as protection against troubles that the debt issuer could encounter.
