What Happened To European Banks

This week has been a brutal one so far for European banks, as the sector has seen a steep decline amid worries about bad debts and future instability.

Germany's Deutsche Bank AG (USA) (NYSE: DB) has fallen nearly 40 percent so far this year, and others like Barclays PLC (ADR) (NYSE: BCS) and BNP Paribas SA (ADR) (OTC: BNPQY) all lost upward of 5 percent at the beginning of this week, as investors fled the space.

A Rough Decade

Banks have had a tough time since the financial crisis in 2008, as their profits have been hammered and investors remained wary of their stability, especially in Europe. Now, with the European Central Bank keeping interest rates low and maintaining an accommodative policy, banks are struggling to make money on loans, and the ECB's decision to enact a negative deposit rate means that banks are charged for keeping money at the central bank.

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Energy Concerns

Another big concern on investors' minds is declining energy prices. Many worry that with oil prices stuck at record lows, energy firms will eventually default on the hefty bank loans that have kept them afloat over the past year.

No Chance For A Comeback

While at the moment banks look poised to weather the storm, investors are worried that the financial sector is teetering on shaky ground. While banks have been able to preserve just enough capital to keep from a meltdown, a lack of economic growth in several countries around the world has the potential to weigh on their progress. Many worry that the overall negative sentiment in the market will continue to drag the sector down, and high unemployment in Europe could keep consumers from taking out loans, spending and spurring the economy.