Shares in Germany's largest bank, Deutsche Bank, tumbled on Friday, dragging down other major European banks and indexes as fears of contagion in the banking system spread.

The Frankfurt-listed stock closed 8.5 percent lower, after slumping by as much as more than 14 percent at one point during Friday's trading session.

The drop follows a spike in the cost of insuring the bank's debt against the risk of default. Its five-year credit default swaps shot up to a four-year high of above 220 basis points (bps), from 142 bps just two days ago, based on data from S&P Market Intelligence.

Speaking in response to the sharp fall in the bank's share prices, German Chancellor Olaf Scholz sought to shore up confidence in the country's biggest lender.

"Deutsche Bank has thoroughly reorganized and modernized its business model and is a very profitable bank," said Scholz at a news conference in Brussels. 

He dismissed comparisons between Deutsche Bank and Credit Suisse, saying "there's no reason to worry."

"The capital adequacy of European banks is robust, thanks to the work [we've put in] over the past few years and also thanks to the efforts of the banks themselves," Financial Times reported Scholz as saying.

Despite Scholz's attempts to calm market jitters, a steep sell-off in banking stocks hit European indexes on Friday. 

At market close, the DAX in Frankfurt lost 1.66 percent, the CAC 40 in France fell 1.74 percent, and the FTSE 100 in the UK was down 1.26 percent. UBS, Societe Generale, Barclays, BNP Paribas and Commerzbank were among the banks that saw their stock prices fall.

The latest rout in banking shares came after the emergency rescue of Credit Suisse by UBS and in the wake of the collapse of two U.S. banks. These recent developments have caused the market to fret that regulators and central banks have yet to contain the worst shock to the sector since the 2008 global financial crisis.

However, some banking analysts stressed that there was a difference between Credit Suisse and Deutsche Bank.

Research firm Autonomous said it was "crystal clear" Deutsche is "NOT the next Credit Suisse," while JPMorgan analysts wrote "we are not concerned" and that Deutsche's fundamentals were "solid."

Paul van der Westhuizen, senior strategist at Rabobank, cited Deutsche's profitability as the "fundamental difference" between the two European banks, given Credit Suisse did not have a profitable outlook for 2023.

Still, the bank's shares have lost more than a fifth of their value so far this month, with $3 billion wiped off its market value in the space of just one week.

Some are expecting Europe's banking stocks to see continued fluctuation in the short term due to growing concerns of investors about the stability of the banking system. Further rate hikes by the U.S. Federal Reserve may also put more banks in an even more dire situation.

(With input from Reuters)