Dow drops as banking stocks sink

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US markets were down on Friday, to end the worst week for the sector in over a decade

Bank stocks led US markets lower on Friday as investors’ concerns over the health of the financial sector continued to grow.

The Dow Jones Industrial Average was down over 400 points, or 1.3%, as of 16:10 GMT. The S&P 500 fell 1.15%, and the tech-heavy Nasdaq Composite slid 0.9%.

The slide was driven by financials, with First Republic Bank stock nosediving 20% in early trading after the bank suspended its dividend payout and analysts announced that it was facing a “dire” outlook. On Thursday, big US banks, including JPMorgan Chase and Morgan Stanley, threw a $30 billion lifeline to the troubled regional lender.

The banking sector’s struggles worsened as SVB Financial Group announced on Friday it had filed for Chapter 11 bankruptcy protection in New York to seek buyers for its assets. The announcement came days after its former unit, Silicon Valley Bank, was shut down by US regulators.

“Deposits have fled from regional banks like First Republic into the big banks who are now bailing them out by putting the deposits back in. But it doesn’t solve the problem,” the chairman of Great Hill Capital, Thomas Hayes, told Reuters.

“Until you stop the deposit flight from regional banks into the systemically important banks that are too big to fail, it doesn’t matter how much money you pour into the bucket,” he added.

The news of the First Republic Bank rescue followed a 50-basis-point rate hike by the European Central Bank (ECB), which remained focused on combatting inflation despite the rising concerns about the region’s banks.

Investors will now closely follow the US Federal Reserve’s interest rate decision, which is due next week.

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