Getty What would happen if Deutsche Bank collapses?

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The dramatic collapse of Lehman Brothers eight years ago this month was a defining moment of the devastating financial crisis. Huge bail-outs were needed to shore up the troubled industry as the credit crunch turned the downturn into the worst recession in decades. Eight years on, Deutsche Bank’s shares plunged to new record lows today amid fears that it cannot afford to pay a £10.7bn ($14bn) fine from US authorities. The slump has rattled the stock market and hedge funds are starting to pull out some of their business amid deeping fears over the bank's financial health.

What happens if Deutsche Bank collapses? Phoenix Capital Research, an investment research firm based in Washington DC, believes that the trouble at Deutsche Bank heralds a banking crisis in the EU. Phoenix said: “DB is the proverbial ‘canary in the coalmine’ for Europe. "Perched atop one of the largest derivatives books in Europe, DB has ties to most major financial institutions in the region. “Which is why as soon as DB starts nose-diving, you know something big is up.” Deutsche Bank’s shares have taken a worrying slide this week after having fallen more than 50% this year alone.

Yahoo Deutsche Bank has lost more than half its value this year

Phoenix Capital Research said Deutsche Bank is “considerably” larger than Lehman Brothers and has a “disturbing” long-term stock chart. “We believe the global markets are on the verge of another Crisis. 2008 was Round 1. This next round, Round 2, will be even worse,” the firm said. But the German Government has offered reassurances about the situation at Deutsche Bank and has rejected comparisons to Lehman Brothers. Senior conservative German lawmaker Hans Michelbach said it was “unimaginable” that the state would support the bank because there would be “public outcry”. Mr Michelbach said: “You can’t compare Deutsche Bank with Lehman… The bank is in a position to get out of this situation on its own.” Deutsche Bank Chief Executive John Cryan has also reassured staff that the bank remains “strong”. He said: ”Our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price."

Laith Khalaf, senior analyst at Hargreaves Lansdown, acknowledged that the collapse of Deutsche Bank would be “very bad in many ways” for the banking industry. But Mr Khalaf said: “The banking system as a whole is much stronger than it was in 2008. Solvency ratios are much better than they were. “Although it would be a pretty catastrophic event, I suspect that actually the banking sector would probably hold up better. The knock-on effect would not be as bad.” Nevertheless Mr Khalaf warned that was difficult to be certain because something of that magnitude could lead to the “resurfacing of fears” about the financial system.

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