European Central Bank official flagged a possible tightening in lending. Authorities around the world are on high alert for the fallout from recent turmoil at banks following the collapse in the United States of Silicon Valley Bank and Signature Bank and the rescue takeover a week ago of Credit Suisse
The euro fell against the dollar, euro zone government bond yields sank and the costs of insuring against bank defaults surged despite assurances from policymakers.
Banking stresses are leading to a widespread credit crunch.
After the Swiss government engineered the rescue takeover of Credit Suisse by Zurich-based rival UBS , Germany’s Deutsche Bank moved into the investor spotlight.
The sudden spike in tensions for banks has raised questions about whether major central banks will continue to pursue aggressive interest rate hikes to try to bring down inflation, and prompted some to speculate on when rates will start to fall.
On the positive side deposit outflows seem to have slowed down. Some confidence is being restored among smaller and regional banks.