Banking stocks have dropped sharply again, as investors remain concerned following the failure of Silicon Valley Bank (SVB) in the United States last week.
The failure of SVB has raised concerns that other banks may also be in trouble.
Credit Suisse shares have reached a new low after falling by 20%.
The drop occurred after Credit Suisse’s largest investor stated that it could no longer provide the bank with financial assistance.
By mid-morning, European stock indexes, including the FTSE 100 in the United Kingdom, were down about 2.5%.
The FTSE 100 has fallen 6% in the past week to reach a three-month low.
“Investors remain nervous about what might be lurking in the shadows,” said Russ Mould, investment director at AJ Bell.
“It’s no wonder that investor sentiment remains cautious towards the big banks given that credit agency Moody’s downgraded its outlook on the US banking system to ‘negative’.“
Credit Suisse’s shares slumped after it revealed on Tuesday that its auditor, PwC, had identified “material weaknesses” in its financial reporting controls.
That prompted major investor the Saudi National Bank to say it would reject calls to inject further funds into the Swiss lender.
The wider problems in the banking sector began last week with the collapse of SVB, the US’s 16th-largest bank.
The bank – which specialised in lending to technology companies – was shut down by US regulators on Friday in what was the largest failure of a US bank since 2008.
SVB’s UK arm was snapped up for £1 by HSBC.
In the wake of the SVB collapse, New York-based Signature Bank also went bust, with the US regulators guaranteeing all deposits at both.
But fears have persisted over the fallout from the collapse and trading in bank shares has been volatile this week.
On Monday, trading was temporarily halted in several smaller US banks as shares slumped, although Tuesday saw stock prices rebound.
However, credit ratings giant Moody’s has warned of more pain ahead for the US banking system.
On Tuesday, it cut its outlook for the sector to “negative” from stable, warning of “a rapid deterioration in the operating environment”.
“The worry is that banks sitting on large unrealised losses in their bond portfolios might not have sufficient buffers if there is a fast withdrawal of deposits,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“Although the biggest players are judged not to be at risk, thanks to the chunky layer of capital they are sitting on and the stable nature of their deposits, the nervousness is palpable.”