The chief executive of Deutsche Bank, Josef Ackermann, warned yesterday that ‘numerous’ European lenders would collapse if forced to book their sovereign bond losses.

Speaking at a conference in Frankfurt (Banks in Transition) he said that many banks, especially the smaller ones, could be overwhelmed by having to revalue the sovereign debt they hold on their books at realistic market levels.

A combination of the debt crisis, structural factors and financial regulation are placing strains on the banking system that are making it hard for them to increase revenues he said.

According to Ackermann some of the European banks had lost up to a third of their market capitalisation.

So, it’s not just countries feeling the pinch, the banks are suffering too.

The recently released Goldman Sachs 54 page report also said that some European financial institutions were on the verge of collapse.

Ackermann said that it would take a long time within our democratic system to recover and that another round of recapitalisation as called for by the IMF head Christine Lagarde would not be the right thing to do at this time. Adding that apart from diluting the banks it would also send out a message that the politicians did not have faith in the measures they had already put in place.

"All this reminds one of the autumn of 2008," said Ackermann."We should resign ourselves to the fact that the 'new normality' is characterized by volatility and uncertainty."

He also said that the break-up of the Eurozone was not the answer as it would be far more costly to do that than to prop up the weaker states within the Eurozone. He said that going back to being individual states would not provide a shield against modern external economic effects.

As if in sympathy with his words the markets, led by banking shares, tumbled.

But he also said that the finance industry should be the servant of the wider economy, not of itself.

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