"Since concerns about a potential U.S. government default began to build in July, no bank or counterparty has turned down the Morgan Stanley name," Hintz wrote.
The spread between the three-month euro interbank offered rate and overnight indexed swap rose yesterday to 69.7 basis points, the highest since April 2009.
Stress Tests
European Union regulators failed eight of 91 banks in stress-test results announced last month, requiring the lenders to raise 2.5 billion euros ($3.5 billion) in capital. While the examinations considered a 25 percent writedown on Greek government bonds, they didn't include the possibility of a sovereign default, a scenario that's now the focus of investors.
Societe Generale climbed 2.9 percent to 22.75 euros today after falling as much as 23 percent yesterday in Paris. Credit- default swaps on the bank rose 65 basis points to a record 337 basis points yesterday. Societe Generale "categorically denies all market rumors," Emmanuelle Renaudat, a spokeswoman for the French bank, said yesterday in an interview. She declined to be more specific.
European Lenders
European bank shares lost 5.3 percent yesterday, for the biggest decline among the 19 industry groups in the Stoxx Europe 600 Index and the steepest drop since May 2009.
Continued declines may erase the current U.S. stability. Clients are likely to pull business from banks if shares drop below 50 percent of tangible book value, which would indicate concerns about solvency, Peabody said. Bank of America is at 54 percent of tangible book value, while Citigroup and Morgan Stanley are at 58 percent and 62 percent, respectively.
"If this moves from concern to fear, then all bets change quickly," Knutson said. "For anyone who lived through the 2008-2009 period, it's not at that level yet."