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Shares of French and German banks fell Tuesday on European exchanges because of investor fears that Greece may be closer to defaulting on its debt, potentially causing heavy losses for banks that hold Greek bonds.
Investors worry that French banks, in particular, are heavily exposed to Greek debt. Shares of French-Belgian bank Dexia plunged 22.5 percent because of fears that it may not be able to survive in its current form, despite government promises to prop up the bank and insure every cent of its deposits.
Other French banks declined as well. Societe General lost 4 percent and BNP Paribas dropped 5 percent in Paris.
And Germany's Deutsche Bank, which warned that it would miss its profit target for the year because of charges related to its Greek debt holdings, declined 4.3 percent. Commerzbank, another German bank, lost 4.7 percent.
The decline in bank shares helped drag broad market indexes in Europe lower Tuesday. Germany's DAX declined 3 percent, while the CAC-40 in France both fell 2.6 percent.
Weighing on the banks are fears about Greece. A default in Greece could hurt European banks' balance sheets and rattle global financial markets. Without the next batch of aid due from its euro110 billion ($146 billion) bailout, it could default.
European finance ministers have delayed a decision on whether to release the next batch of loans for Greece. They are concerned that Greece is not doing enough to cut spending. But many Greeks have protested the government's austerity measures as the economy contracts, incomes fall and living costs climb.
A debt restructuring for Greece "now seems inevitable," said J.P. Morgan economist David Mackie said in a research note, and the value of the debt held by banks will be "substantially marked down."
In another JPMorgan note, equities analysts said that a solution to the debt crisis would require a European bailout similar the one that restored U.S. banks during the financial crisis.
"We continue to believe that a solution in the form of Euro TARP would be the best medicine to open up funding markets, and note a solution is needed before 2012, as almost euro500 billion ($664 billion) of medium (and) long-term debt need to be refinanced," the analysts said in a note to investors.
The Treasury Department invested in banks through the TARP, or Troubled Asset Relief Program, in 2009.
But European officials have so far been unable to contain the crisis, which has dragged on for almost two years.