People gather outside of the Silicon Valley Bank (SVB) headquarters in Santa Clara, California, U.S. March 10, 2023. REUTERS/Nathan Frandino

Global banking shares plunged on Monday as moves by the United States to guarantee deposits at collapsed tech-focused lender Silicon Valley Bank failed to reassure investors that other banks remain financially sound.

Europe’s STOXX banking index fell 5.8%, having shed 3.78% on Friday, leaving it on track for its biggest two-day fall since March 2022, soon after Russia invaded Ukraine.

Commerzbank AG fell as much as 12.7%, while Credit Suisse Group AG briefly hit a new record low after falling more than 15%.

US banks also declined in pre-market trading, with Bank of America down 3.7%. Smaller lenders remained under pressure with privately owned First Republic Bank plunging around 60% and PacWest down around 40%.

Trading volumes were high, running at 160% of the one-month average for the EURO STOXX 50 according to a note seen by Reuters, while Europe’s volatility index jumped to its highest since October 2022.

“There is a sense of contagion and where we see a repricing around financials is leading to a repricing across markets,” said Mark Dowding, chief investment officer, BlueBay Asset Management in London. He said he did not think that a lot of the issues impacting US banks would be manifested in European peers.

Bonds held by SVB were “worth next to nothing in a short space of time, so against that backdrop, that has an effect that is translated on a more widespread basis,” he added.

After a dramatic weekend, US regulators on Sunday stepped in after the collapse of SVB – the largest US bank failure since 2008, which suffered a run after a big hit on a portfolio of bonds.

SVB‘s customers will have access to all their deposits starting Monday and regulators set up a new facility to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.

Regulators moved swiftly too to close New York’s Signature Bank, which had come under pressure in recent days. But more stress is expected.

First Republic Bank said on Sunday it had secured additional financing through JPMorgan Chase, giving it access to a total of $70 billion in funds through various sources.

EUROPEAN FALLOUT

In Germany, the central bank convened its crisis team on Monday to assess the possible fallout on the local market, even as no emergency action was foreseen in Europe.

After marathon talks over the weekend, early on Monday in London HSBC announced it was buying Silicon Valley Bank UK, the British arm of SVB, for one pound ($1.21). It said the subsidiary had loans of around 5.5 billion pounds and deposits of around 6.7 billion pounds as of March 10.

While SVB UK is small – HSBC’s balance sheet exceeds $2.9 trillion – concerns that SVB‘s failure would cause Britain’s start-up industry to seize up had prompted calls from the sector for government to intervene.

MARKETS GYRATE

Meanwhile, a furious race to re-price interest rate expectations also sent waves through markets as investors bet the Fed will be reluctant to hike next week while the mood is febrile and delicate.

Markets are now pricing in a roughly 40% chance that the US central bank will not raise rates at all, according to the CME’s Fedwatch tool. Earlier last week a 25 basis point hike was fully priced in, with a 70% chance seen of 50 basis points.

Two-year US Treasury yields were last down 55 bps at around 4.09% set for their biggest one day fall since 1987 according to Refinitiv data. SVB‘s collapse comes alongside the closure of crypto-focused bank Silvergate, which last week disclosed plans to wind down operations and voluntarily liquidate, in the aftermath of FTX’s implosion last year.

US banks lost over $100 billion in stock market value late last week following SVB‘s failure, while European banks have now lost a similar amount, according to a Reuters calculation.