Avert your eyes, ladies and gentlemen. The carnage in Europe's financial sector is growing bloodier.
Since January, the MSCI Europe Banks Index has plunged by a third, with much of the damage happening in the two weeks since the Brexit vote. The typical European bank now trades for only slightly more than half its book value, which is the market's polite way of declaring that large portions of lenders' supposed assets probably aren't worth a plugged euro.
The crisis of confidence reaches from Italy's perennially bumbling small banks all the way up to erstwhile world-beaters like Germany's Deutsche Bank. The sheer scale of the downturn reminds some people of the early days of the 2008 debacle.
Fortunately, that comparison seems overdone – at least, so far. Higher requirements for bank capital and better mechanisms to wind up troubled banks have blunted the danger of a sudden, catastrophic implosion of financial institutions.
But better regulation does little to address the danger of Europe's financial sector slipping into a long malaise, with dire effects on the global economy.
The essential problem is that European banks can't recover without a stronger European economy, but the European economy can't rebound vigorously without stronger European banks. So long as the continent keeps swigging a toxic cocktail of fiscal austerity and negative interest rates, it seems doomed to remain locked in a vicious circle, with a weak economy dragging down its banks while weak banks impede a stronger recovery.
"We're in a pretty stuck position," says Adair Turner, an observer who should know.
Lord Turner – Baron Turner of Ecchinswell, to give him his proper monicker – is a Cambridge-trained economist, former vice-chairman of Merrill Lynch Europe and former chairman of Britain's Financial Services Authority. He is now a senior fellow at the Institute for New Economic Thinking, a think tank backed by financier George Soros and Jim Balsillie of Research In Motion fame, among others.
Lord Turner argues that the most pressing problem for European banks is a real economy that is stagnating. He notes that the European Central Bank (ECB) is now willing to supply funds to euro zone banks on "incredibly generous terms," but the prospect of essentially free money has failed to spark any boom in bank lending. "The biggest problem is not the ability of banks to lend," he says. "It's that there's not enough confidence in the real economy to make people want to borrow."
To be sure, European banks face other issues as well. Italian lenders, in particular, are carrying a mountain of bad loans. Across the continent, returns on bank assets are dismally low, signalling too many lenders chasing too little business. The entire sector could use an injection of new capital.
But those issues have been around for years and they take a back seat to what Lord Turner sees as a fundamentally flawed approach to restoring Europe's real economy to health. It stems from a disagreement at the heart of the euro zone economy.
Many states on the euro zone's periphery – Italy, Portugal and Greece, among others – are mired in debt. They crave economic stimulus but can't afford to go deeper into hock to finance a new wave of spending. In stark contrast, there's Germany, which has a robust economy and plenty of capacity to borrow and spend, but refuses to do so.
Given German intransigence on deficit spending, the entire weight of prodding the euro zone economy back to life has fallen on the ECB, which has responded by pulling key interest rates lower and lower – even below zero in many cases.
"Where we are now is at the absolute limits of what you can do by monetary policy alone," Lord Turner says. Negative rates are supposed to encourage people to spend and invest in the real economy, but instead are creating a swarm of perverse effects.
Among them is pressure on bank profits. Financial institutions can't pass on negative rates to depositors without having customers flee. That narrows the gap between deposit and lending rates and crimps banks' profit margin on loans.
The plunge in European bank shares since the Brexit vote appears to reflect fears that uncertainty around Britain's exit will ensure ultralow rates for years to come – something that would be a disaster to Lord Turner's way of thinking, since ever-lower rates appear to be losing whatever power they once had to boost the real economy.
Lord Turner argues that what the European Union needs is a bold willingness to finance new fiscal stimulus by creating money out of thin air, with no offsetting debt obligation, to finance tax cuts or increased spending on public works.
The case for "helicopter money," which Lord Turner outlined in a recent book, petrifies traditional financiers, but he argues it's the only option left in a world where interest rates have gone as low as they should go and political barriers block deficit spending. The alternative, he suggests, is long-term stagnation.
"The ECB has enough power on its own to prevent things from getting so bad that the euro zone will break up over the next few years, but not enough power on its own to make it a successful economy," he says.