The Euro Stoxx Banks index declined about 8%, reaching its lowest level since June and entering a technical correction on Thursday, after a sharp two-week fall that reversed part of a three-year rally which saw European banking shares triple since 2022. The trigger is rising government bond yields, particularly in France, where political uncertainty and fiscal concerns over public finances pushed the French borrowing premium over Germany to its widest in more than a decade. Higher yields threaten to increase loan defaults, slow lending and reduce the value of government bonds held by banks, whose sovereign debt exposures were about 13% of assets at end-2025.
Societe Generale, Credit Agricole and Deutsche Bank each fell more than 15% from recent highs. Roberto Scholtes, head of strategy at Singular Bank, said bond yields “appear to have crossed a pain threshold that has prompted investors to reassess fundamentals.” JPMorgan strategists called the decline in French banking shares a potential buying opportunity if yields do not rise substantially further, Morgan Stanley said prolonged bond volatility would be needed to undermine fundamentals, and Barclays expects third-quarter earnings later this month to refocus attention on banks’ financial strength. A Bank of America September fund manager survey showed a net 25% of European investors were overweight banking stocks.