11/10/2008 05:12 am ET Updated May 25, 2011

European Banks Up To Their Eyeballs In Leverage

NEW YORK (Fortune) -- Leverage, the menace that helped bring down some of the biggest names on Wall Street, is now threatening the health of big banks across the Atlantic.

The credit crunch that led to the failure or forced sale of seven big U.S. financial firms last month is now wreaking its havoc on Europe. Four major financial institutions have been rescued in just the past week, and financial shares are in free fall as investors fret that more banks will need help.

The problems in Europe are worth watching because additional bank failures threaten to further undermine investor confidence at a time when the global economy is slowing, stocks are plummeting, and short-term credit markets are locked up. Economists fear that with the global financial system under severe stress, the economy is especially vulnerable to a shock that could deepen what's shaping up as a serious recession.

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