European Banks: 2Q23 FAQs

Puja Karia – Senior Analyst - European Banks
Simon Adamson – Head of Global Financials Research
Paola Biraschi – Senior Analyst - European Banks
Jennifer Ray – Senior Analyst - European Banks

  • In client meetings, the question we invariably hear is: “what are other people asking you about?”.
  • So we decided to recap a selection of the most frequent or interesting questions asked by clients in the second quarter of 2023.
  • Most popular topics are probably no surprise: AT1s and extension risk, USD LIBOR Swap Rates and fallback provisions, the mechanics of bail-in, deposit stability, and commercial real estate exposures.
  • Regarding topical questions about specific bonds or asset classes, these have generally been about 2H23 callable AT1s, Nordic banks (due to their commercial real estate exposure), bullets vs callable senior bonds, and Disco perps.
  • The most frequently requested reports, which include financial data and analysis relevant for those interested in European banks, are the European Banks CoCo Database, the European Bank Capital Model, and European Banks’ Credit Metrics data.

As you would expect in the aftermath of UBS’s rescue of Credit Suisse, the number of client questions and calls has been higher than normal. In the meaningful number of conversations we have had with clients in the past three months, several topics have proved to be popular. In this note, we group the questions into several themes as we include a snapshot of the various questions we received, and how we answered them.


The market seems to be downplaying deposit outflows for European banks – is it possible that large outflows will take place?

There have been isolated incidents of deposit flight in the past – most notably Northern Rock in 2007 and Credit Suisse late last year – but examples are rare and have been linked to significant concerns about a bank’s fundamental health. European banks tend to have diversified and retail-focused deposit bases, with a much higher percentage of insured deposits than at Credit Suisse, that have shown stability through different market and economic conditions. Clearly the rise of social media (as a melting pot for rumour and speculation) and online banking (making it easier to withdraw money) have increased the risks, but we are not aware of other European banks having suffered unusual outflows this year. One factor is that there are not as many alternatives to bank deposits for people wanting to hold cash – money market funds are not as active or large as in the US. However, retail investors in some countries have the option to hold mutual funds, or even to invest directly in government debt – in these cases banks remain involved as intermediators, as they often hold the clients’ savings as assets under management or under custody. Some banks did report modest reductions in deposits in 1Q23, but they mostly blamed season trends (e.g. tax payments), cost of living pressures (people dipping into their savings) or more attractive investments where banks have been slow to pass on interest rate rises. This is in the context of significant deposit inflows during and after the COVID pandemic.

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