Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

At the height of the U.S. financial crisis in 2008, right after the bankruptcy of Lehman Brothers, everyone was waiting for the proverbial "other shoe to drop." 

There was only one problem with that analogy, as money manager Laszlo Birinyi pointed out then: "This is a centipede. We keep waiting for the other shoe to drop and it drops and then there's another shoe and another and another." 

So here we are, two trading sessions after British voters dropped a giant shoe that landed with a calamitous thud in financial markets, wondering just how much footwear this particular crisis has on.

A look at many of the stress indicators shows how far financial markets are from a Lehman Brothers or European debt crisis-like crunch. However, the rapid rate at which conditions deteriorated is eye-popping and will require close attention before anyone should feel confident enough to sound the "all clear."  

One of the more interesting reactions was that the rates that big banks say they charge one another for loans actually fell sharply on Friday. Three-month Libor rates in U.S. dollars, which had climbed to a seven-year high at the end of May, fell to a three-month low. Pound Libor rates sank to a 15-month low: 

Libor Lies Down
Three-month Libor rates plummeted on Friday in pound, dollar and euro terms after Britain voted to leave the European Union
Source: Bloomberg
Note: Euro rates are negative, so not shown.

This likely reflects expectations for continued low interest rates from central banks in the U.K. and the U.S. and prospects for more liquidity to be pumped into the system rather than any barometer of confidence in the banking system.

The Libor-OIS spread, a gauge of credit risk that measures the difference between interbank lending rates and the overnight-indexed swap rate, also slipped on Friday but remained near a four-year high of 27.27 basis points. This spread tends to increase when stress is building in the banking system. By comparison, it climbed to as high as 364 basis points during the financial crisis:

Stress Reading
The spread between three-month U.S. Libor rates and the overnight-indexed swap rate is frequently looked at as a gauge of stress in the banking system
Source: Bloomberg

And of course, Libor rates are a completely accurate and universally trusted metric of .... Ah, never mind. Let's move on, shall we? 

Credit default swaps on financial firms, the prices paid to insure their debt, can give some more clues. These spiked on Friday and continued to rise on Monday. Still, at 138 basis points, an index of 30 investment-grade European financial companies hasn't yet exceeded its high for the year reached when markets were convulsing in February. And it's less than half its level in 2011: 

Credit Risk
An index of credit-default swaps on European financial firms is flirting with an almost three-year high
Source: Bloomberg

The European Central Bank created what it calls the Composite Indicator of Systemic Stress, which is a stew of 15 mostly market-based measurements that track the financial intermediaries sector, money markets, equity markets, bond markets and foreign exchange markets. It more than doubled on Friday and has returned to levels last seen during the European debt crisis: 

Stress Reaction
An ECB gauge of systemic risk in the financial system surged to the highest since 2012
Source: ECB

Financial condition indexes maintained by Bloomberg also show deterioration. These gauges track the overall level of stress based on money, bond and equity markets to help assess the availability and cost of credit. With these indexes, a lower number means conditions are less accommodating. The indexes are negative for both the U.S. and Europe, signaling conditions are worse than what was normal before the 2008 financial crisis yet still miles better than where they were during the crisis: 

Negative Conditions
Financial condition indexes for the U.S. and Europe dipped further below zero after the U.K. voted to leave the EU
Source: Bloomberg
Note: Bloomberg tickers are BFCIUS Index and BFCIEU Index

Of course, the movement in share prices is another way to gauge banking risk. By that metric, some of Europe's banks had their biggest back-to-back declines since at least the financial crisis and, in some cases, since 1999.

Back-to-Back Bloodbath
Shares of many global banks have lost more than 10 percent since the Brexit vote
Source: Bloomberg
Note: Shows two-day share price declines as of midday Monday in New York.

The plunge in financial stocks -- especially regional banks in the U.S., which are down 12 percent in two days for their worst drop since 2009 -- highlights most of all how any hopes that higher interest rates will come along and fatten lending margins are pretty much dead. 

But that's just the tip of the iceberg. S&P Global Ratings cut the U.K.’s top credit grade by two levels, raising concern about how much counterparty risk global banks will be exposed to. There are questions about how much it will cost should global banks be forced to pack up their London headquarters and move elsewhere. And there are questions about what effect all this market volatility means to big banks' trading desks.

As such, the current state of financial stress may actually be more acute than any of these charts are showing at the moment. Keep your ears open for the sound of more shoes dropping.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Michael P. Regan in New York at

To contact the editor responsible for this story:
Daniel Niemi at