I’ve been watching the systemic risk rising in the banking sector as denoted by the 5 year CDS prices in Bloomberg. At first the elevations were slow and steady, and somewhat understandable in the wake of the European Crisis and the looming Debt Ceiling decision. However, since last Friday, something unnerving is happening. The cost of credit insurance for major money center banks is beginning to spike. The good news is in most cases the spike is well below the fear levels promoted by the failure of Lehman Brothers. However there is one US Bank that seems to be on the precipice of something much more dramatic than its peers. Consider the most recent CDS price rankings from Bloomberg today, and take a look at the charts of some of the samples below. I chose the 5 year charts to put the recent risk in perspective. To be clear, I have not left of the others to warp the perspective, its just that only one really stands out at this moment in time, and it has fallen to the latter part of the list below.
We all know that one bank cannot be stressed and not create more stress for other banks. This is certainly something to keep an eye on. And financials are certainly one area to step over if you are picking through weeds for bargains.