Stocks tumbled on Wednesday as fears grew that the banking turmoil sparked by the recent collapse of two U.S. banks will widen and spread globally.
The Dow Jones Industrial Average dropped more than 1.7%, or more than 500 points on Wednesday morning. The S&P slumped more than 1.5%.
Markets have reeled since the twin failures of Silicon Valley Bank and Signature Bank forced U.S. regulators to take emergency measures on Sunday to protect deposits at both lenders.
But the government's attempt to restore confidence in the banking sector has yet to work as investors remain deeply worried about the financial health of other banks.
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Those fears are now going global.
On Wednesday, the catalyst for the Wall Street drop was a steep fall in shares of Credit Suisse, the second-largest Swiss lender, which once had big ambitions to become a top investment bank.
Shares of Credit Suisse had already been reeling over a number of controversies and poor financial results that have led to an exodus of customers. Last year, it announced a major restructuring plan that included nearly 10,000 layoffs.
Investors got even more spooked about the Swiss bank's financial health after the chairman of its biggest shareholder, Saudi National Bank, told Bloomberg News that the lender would not increase its nearly 10% investment in Credit Suisse.
Credit Suisse fails to reassure investors
Karen Petrou, managing partner at Federal Financial Analytics, a consulting firm based in Washington D.C., said she expects Credit Suisse will be rescued by Switzerland if needed, but added any failure could have major ramifications given how inter-connected the lender is across the globe.
"If Credit Suisse were to fail, you would see significant problems," she said. "All sorts of exposures would come unglued."
Credit Suisse Chairman Axel Lehmann said on Wednesday the bank's balance sheet is strong and that it has sufficient capital, according to The Wall Street Journal, but his comments failed to soothe investors' fears.
The drop in Credit Suisse's share price sparked sharp falls in rival banks, and in European markets broadly, as global investors continue to worry about the stability of the banking system overall.
The largest banks in the U.S. have been trading down. Shares of J.P. Morgan Chase and Goldman Sachs are both down by more than 4.5%.
Meanwhile, smaller, regional banks, which staged a comeback on Tuesday, are seeing their stock prices fall again. San Francisco-based First Republic Bank has been trading down by more than 15%.
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