See: Why Turkey’s currency crisis is shaking European bank stocks and the euro

“Everything I have looked at, the concerns [over European banks] are really overkill. If you look at the credit quality of European banks, it’s pretty stable, ”Carruthers said.

Market participants fear that the Turkish lira USDTRY,
-0.39%
slips the companies of the country which had borrowed in euros USDEUR,
-0.28%
and DXY dollars,
-0.24%
will find it difficult to service its debts denominated in foreign currencies in weakened local currencies.

This year, the pound has lost 62% of its value, while the bank stocks of the Stoxx Europe 600 SXXP index,
-0.18%
fell 11 %%, according to FactSet data.

Lily: How the pound’s sale compares to Turkey’s previous crises

So far, European banks have made money lending to Turkish companies, but now risk having to cancel those loans if the economic environment in Ankara deteriorates. Carruthers estimated that European banks lent around 140 billion euros ($ 159 billion) to Turkish borrowers.

“A lot of Turkish companies have borrowed in dollars, it’s a fatal mistake but it always seems to happen,” Carruthers said.

But Carruthers estimates that even banks that maintain large exposures to Turkey’s debt would see, at most, a 0.2 percentage point drop in their ratio of capital to total assets, if these Turkish loans took the form of a pear, leaving them “a significant reserve capacity. “

European regulators say banks must maintain a certain ratio of capital to assets, made up of loans, cash and investments. Currently, the equity / asset ratio, or its Tier 1 ratio, is greater than 10.5%, according to Basel III rules.

These levels are intended to insure against unforeseen losses and banks are required to maintain these levels to successfully rally with financial regulators. On average, the average capital-to-assets ratio of European banks stood at 15.26% in the first quarter of 2018, according to data from the European Central Bank.

CreditSights analysts echo Carruthers’ sentiments. They called BBVA, HSBC, BNP Paribas and ING’s exposure to Turkish debt “manageable” last week.

Yet the network of connections between European banks and Turkish companies means that one bank’s struggles could have a ripple effect on other financial institutions. Analysts at ABN AMRO ABN,
-7.69%
point to the Spanish bank BBVA BBVA,
-2.57%
as a potential source of contagion. It has $ 90 billion in assets in Turkey, or 12% of its total asset loans.

“If BBVA is forced to deleverage, inflicting greater damage to the Spanish economy and the banking system, the repercussions could be quite severe due to the complex financial ties between European banks,” said Shweta Singh and Davide Oneglia, economists at TS Lombard, in a Monday note.

Carruthers argues, however, that while a deeper drop caused by the weaker Turkish lira could spill over to Europe, it could also be more easily absorbed.

Credit Benchmark data that tracks and aggregates the credit risk assessments of major banks shows their outlook for default in their own industry over the past few years. In the graph below, the probability of default of European banks has stabilized, even as Turkish bank finances have deteriorated.