Asian and European bank stocks drop 3-5% as investors price in U.S. fraud spillover
Contagion Spreads: European Banks Under Pressure
The U.S. regional bank crisis is no longer a domestic issue. On Friday, European bank stocks joined the selloff, with the STOXX Europe 600 Banks Index falling 3.8%—its biggest one-day drop since March 2023. Deutsche Bank (DBK) slid 4.2%, while HSBC Holdings (HSBA) dropped 3.1%, as investors worried about their exposure to U.S. commercial real estate (CRE) and cross-border lending.
Asian markets fared no better. Japan’s Mitsubishi UFJ Financial Group (MUFG) fell 2.7%, and Australia’s Commonwealth Bank (CBA) dropped 2.1%, after both disclosed small but notable holdings in U.S. regional bank debt. “U.S. CRE risk is global,” said Sarah Chen, senior analyst at Nomura. “European and Asian lenders may not have direct fraud exposure, but their CRE portfolios face the same rate-driven pressure as U.S. banks.”
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Image Description: Line chart tracking STOXX Europe 600 Banks Index (-3.8%), Nikkei Banking Index (-2.5%), and S&P Regional Bank Index (-6.3%) on Oct 17, highlighting global contagion.
Image Source: Pexels Global Financial Charts (https://www.pexels.com/search/global%20bank%20chart/), free for commercial use.
CRE Link: The Common Vulnerability
The root of the global worry lies in commercial real estate. U.S. office vacancy rates hit 19.2% in Q3 2025—near 30-year highs—and European rates aren’t far behind, at 16.8% in major cities like London and Paris. U.S. regional banks hold 39% of their assets in CRE loans, but European banks aren’t far off: Deutsche Bank’s CRE exposure is 28% of its loan book, and HSBC’s is 22%.
“Rate hikes didn’t just hurt U.S. borrowers,” explained Carlos Mendez, European bank strategist at Bank of America. “A German office developer struggling to refinance is just as risky as a U.S. one—and that risk travels across borders.” This week, two small German CRE firms defaulted on €200 million in loans, adding fuel to the panic.
Central Bank Response: Calm or Panic?
Global central banks are trying to reassure markets. The European Central Bank (ECB) issued a statement saying “European banks have strong capital buffers and limited direct U.S. regional bank exposure.” The Bank of Japan (BOJ) held an emergency meeting to discuss market stability, though it took no immediate action.
But investors remain skeptical. “Words aren’t enough,” said Chen. “If more U.S. banks fail, central banks may need to cut rates or expand liquidity—something they’ve been reluctant to do with inflation still above targets.” For now, the selloff continues, as global markets wait for clearer signs of stability.