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Contagion Risk for US Banks

The European crisis has spread quickly over the last few weeks to global markets.  The S&P 500 shaved 2.85% today and closed at its 52 week lows.  The bigger news is that US banks have become a larger target of exposure rumors.  Morgan Stanley has quickly grabbed the headlines with a fervor that trumps Bank of America:

US Bank credit spreads at crisis levels

To put Morgan Stanley’s credit spread in perspective, it is now wider than Italian banks.  These spread levels indicate collapsing confidence in the US banking system that can become a self-fulfilling prophecy.  With equity markets down so sharply and financial institutions in the gun sights again, I can only imagine that the Fed and the Treasury are looking at a new plan to calm the markets.  The last thing that we need is the global financial crisis redux.

Posted in Markets, Politics.

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