Why Sovereign Debt Is The Only Thing That Matters To Europe's Banks

European sovereign CDS prices are lower this morning after the head of the European Financial Stability Facility said Greece’s debt will not need to be restructured.

Whether you believe him or not, the market does, and CDS prices have dipped on the news.


Photo: CMA Datavision

But just how important were those comments? Well, this new chart from Societe Generale puts it in perspective. For Europe’s banking sector, all that matters now is that sovereign CDS price. In fact, the the price on sovereign CDS is reflected in the CDS of banks from each country.


Photo: Societe Generale

To a certain extent, this makes sense. A few months ago, we talked about the banks most exposed to sovereign debt in Europe. What that data showed was that banks in bailed out Ireland and Greece had the biggest risks, closely followed by other banks with known sizable exposures to sovereign debt.

What’s interesting here is that banks that are believed to be diversified beyond the sovereign, like Santander with its exposure to Latin America, are still tracking their sovereign’s CDS price.

Check out those banks most exposed to sovereign debt in Europe >

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