Fears of a “domino effect” rattled global markets after two seemingly isolated incidents at small US regional banks triggered a massive sell-off. The developments followed the recent bankruptcies of sub-prime lender Tricolor and auto-parts supplier First Brands, heightening concerns about systemic credit stress.
The trigger came from Zions Bancorporation (a $50m write-off) and Western Alliance (a $100m bad loan). This news, though small in scale, drew immediate comparisons to the start of the 2023 SVB crisis, which also began at a regional lender.
The market reaction was global. In Asia, the Nikkei and Hang Seng fell. In Europe, the FTSE 100, Dax, and Cac 40 all dropped, led by a rout in bank stocks. Barclays, Deutsche Bank, and Banco Sabadell were among the worst hit, contributing to a €37.4 billion loss for the sector.
With the underlying health of the economy in question after a period of high rates, investors fled to safe havens. Gold hit a record high above $4,300 an ounce. The VIX “fear index” also surged, confirming the deep-seated anxiety among investors.