New European banking rules could also cause contagion to spread.  The Bank Recovery and Resolution Directive means investors in European banks have to face losses before taxpayers come to the rescue this time round. European banking shares suffered heavy losses last week, and Europe’s biggest bank, Deutsche, fell 6pc to €14.04 on Frifday approaching record lows of €13.23 it plumbed in February.  Investors may think banking shares are a bargain at these prices, and they would be right if the value of the assets on the balance sheet can be believed.  HSBC is trading at a 437p, or a 43pc discount to its net asset value of around 770p, Barclays at 170.8p today, is at a 40pc discount to its 280p book value, Standard Chartered has the biggest discount trading at 522p, or a 56pc to its £12 book value, and RBS is trading at 214p, or a 34pc discount to its 320p book value. Lloyds again looks most exposed trading at 67p, or a 26pc premium to its 53p book value.  However, if we are coming to an end of a multi-year house price recovery and are about to enter another downturn, then in hindsight those net asset values will look far too high when house prices begin to fall.  The other great hope for investors in UK banks is that one day, in the not too distant future, they can return to the chunky dividends of yesteryear. This scenario is increasingly looking fanciful. The dividends might return, but they will be meagre at best and take years to increase to any meaningful return of cash.  RBS for example dangled the carrot of a return to dividends in 2017 in front of investors last year. However, it needs to sell the Williams & Glyn business before it can hope to pay out dividends. The company warned this is now taking longer than expected. Analysts said there will be no dividends until 2018.  The outlook for dividends seems to be getting worse, not better for the UK’s banks.  UK banking stocks have had seven years in which to repair their balance sheets, and reduce the risk in their business models while they enjoyed cheap borrowing due to a taxpayer guarantee.
UK banking stocks hold a hypnotic pull over retail investors and regularly occupy the top of the league tables for the FTSE 100’s most traded shares.