A selloff in shares of European banks resumed on Wednesday, with the likes of Societe Generale SA and Deutsche Bank AG tumbling more than 5%, as mounting fears over political turmoil sent bond yields higher.
The Euro Stoxx Banks Index fell as much as 4%, putting it on pace to close at the lowest level in about three months. Every stock within the index, which includes lenders like BNP Paribas SA, Credit Agricole SA and UniCredit SpA, was trading lower, as the sector pares back some of its gains on the year.
European markets have sold off recently amid France’s prospect of government collapse and another deficit blowout. Investors are particularly responding to the political and economic crises in France by dumping its bonds, with the spread between the yield on French and German 10-year bonds widening to about 140 basis points. The country’s multiple crises are threatening to drag the European Central Bank into the kind of faceoff with investors that it hasn’t seen since the euro area’s debt crisis more than a decade ago.
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Lenders had been outperforming the region’s broader market and US peers this year, and the group remains up 12% in 2026 despite the recent retreat. The latest pullback has taken the European lenders gauge down more than 8% from an August high, but it appears “more like an episode of sentiment and positioning-driven de-risking than the start of a fundamentals-driven downturn,” JPMorgan strategists led by Davide Silvestrini wrote earlier Wednesday in a note.
The strategists saw the pullback as a good entry point for banks, particularly French lenders, citing a base case for yields not rising substantially more. The direct impacts on balance sheets from the widening in sovereign spreads should be limited, they note.
The second-order effects that could be more impactful, such as deposit mix changes and macro impacts on asset quality, meanwhile, are “primarily about sentiment, probability-weighting, and the persistence of spread widening, rather than an immediate mechanical hit to capital or liquidity.”