Europe's bank stocks came under pressure again on Wednesday, with Credit Suisse tumbling to a new low, as investors continued to worry about stress within the sector following Silicon Valley Bank's collapse.
Regulators and financial executives around the world have sought to assuage contagion concerns after tech-focused lender SVB and another U.S. bank failed last week, but worries persist about the health of smaller institutions in particular.
A fresh 18% drop in embattled Swiss lender Credit Suisse led the wider European banking index lower.
Rapid rises in interest rates have made it harder for some businesses to pay back or service the loans they took from banks, increasing the chances of losses for lenders who are also worried about a recession.
However, European Central Bank policymakers are still leaning towards a half-percentage-point rate hike on Thursday, a source told Reuters, as they expect inflation will remain too high in coming years.
Investors had begun to doubt the ECB's commitment to another big rate hike as SVB's collapse sent shockwaves across markets.
But the source said the euro zone's central bank was unlikely to ditch its plan to raise rates by 50 basis points on Thursday because doing so would damage its credibility.
In the United States, the focus is shifting to the possibility of tighter regulation of banks, particularly mid-tier ones like SVB and New York-based Signature Bank, whose collapses triggered the market tumult.
"We have instilled some stability, but I honestly don't know if it is stability or the appearance of stability, because I certainly do not know what is occurring behind the scenes at the deposit base of several thousand small to medium sized banks across the United States," said John Briggs, global head of economics and markets strategy at NatWest Markets.
Moody's Investors Service on Tuesday revised its outlook on the U.S. banking system to "negative" from "stable", citing heightened risks for the sector.
Earlier, the Tokyo Stock Exchange banks index jumped more than 4%, after three straight days of heavy selling.
Investors had been particularly concerned about the huge bond holdings, particularly U.S. Treasuries, of Japanese lenders, but Japanese finance minister Shunichi Suzuki said on Wednesday differences in the structure of bank deposits, meant local banks would not face incidents similar to SVB.
Bruised U.S. bank stocks had regained some ground on Tuesday, aided by news that private equity and buyout firms were looking to scoop up some SVB's assets, leaving investors hopeful that efforts to shore up confidence would avert a wider crisis.
Apollo Global Management Inc, Blackstone Inc and Carlyle Group were among those reported to have expressed interest in a book of loans held by SVB.
Separately, SVB Financial Group said on Tuesday that Goldman Sachs was the acquirer of a bond portfolio on which it booked a $1.8 billion loss, a transaction that set in motion the failure of SVB.
In Britain, HSBC's top bosses have called on employees at SVB's rescued U.K. arm to assure clients "their deposits are safe and loans are supported" as the process of integration following its takeover begins, a memo from the bank showed.
Meanwhile, Charles Schwab Chief Executive Walt Bettinger said on Tuesday that the bank has ample liquidity and is not currently seeking capital or deals.
The firm had seen an influx of $4 billion in assets to its parent company on Friday as clients moved assets to Schwab from other firms, Bettinger told Reuters.
SVB's shutdown on March 10 - followed two days later by the collapse of Signature Bank - forced President Joe Biden to rush out assurances that the U.S. financial system is safe and prompted emergency measures giving banks access to more funding.
In an attempt to avert a similar crisis down the line, the U.S. Federal Reserve is also considering tougher rules and oversight for midsize banks similar in size to SVB.
Adding to the Fed's conundrum, U.S. inflation data showed few signs of easing in persistent price pressures within the world's largest economy.
"A mixed set of signals leave the Fed more cautious about its next steps and focused on limiting financial contagion," said Lombard Odier's chief investment officer Stéphane Monier.
London - FTSE 100: DOWN 2.3% at 7,462.86 points
Frankfurt - DAX: DOWN 2.7% at 14,830.83
Paris - CAC 40: DOWN 3.1% at 6,917.62
EURO STOXX 50: DOWN 3.0% at 4,053.04
Tokyo - Nikkei 225: FLAT at 27,229.48 (close)
Hong Kong - Hang Seng Index: UP 1.5% at 19,539.87 (close)
Shanghai - Composite: UP 0.6% at 3,263.21 (close)
New York - Dow: UP 1.1% at 32,155.40 (close)
Euro/dollar: DOWN at $1.0616 from $1.0735 on Tuesday
Pound/dollar: DOWN at $1.2071 from $1.2156
Euro/pound: DOWN at 87.93 pence from 88.29 pence
Dollar/yen: DOWN at 133.74 yen from 134.20 yen
West Texas Intermediate: DOWN 1.7% at $70.13 per barrel
Brent North Sea crude: DOWN 1.6% at $76.20 per barrel