Asian markets took a deep dive on Tuesday, as the impact of the closure of two US banks over the weekend reverberated, with signs that European stocks would also take a hit.
Investors are fleeing the sector in fear of a potential US banking crisis, similar to the 2008 financial crisis.
What happened to markets?
Equity markets were well in the red in Asian trade in major markets including Tokyo, Hong Kong, Seoul, Sydney, Taipei, Manila, Jakarta, Bangkok, Shanghai, Mumbai, and Singapore.
Japan's leading and most respected stock index Nikkei dropped 2.2%, whereas the Tokyo Stock exchange banks index fell over 7%. Meanwhile, Hong Kong shares in HSBC and Standard Chartered dropped down to over 5%.
Bank shares in Singapore and Australia also suffered drops.
"Measures by authorities have so far prevented a US bank run on deposits but have not been enough to avert a bank run by investors," National Australia Bank's Rodrigo Catril was quoted as saying by the French AFP news agency .
"The risk of a financial crisis remains elevated, and investors have rushed to reduce their exposure to the sector."
In initial deals, London's FTSE 100 index fell 0.6% to 7,503.85 points compared with the close of business on Monday.
Why are investors scared?
On Friday, US regulators pulled the plug on Silicon Valley Bank in the largest bank failure since the 2008/2009 financial crisis after a sudden run on deposits.
Then on Sunday, New York's Signature Bank followed suit, as the US Federal Reserve took steps to shore up systemic confidence.
A key lender to tech startups, SVB was the 16th-largest bank in the US.
However, the continuous interest rate hikes aimed at quelling inflation took a toll on the bank's assets, as well as the bank's customers, prompting a migration of deposits. The bank had to sell bonds at a loss to cover the withdrawals.
US authorities were quick to pledge support to other lenders and depositors, as fears over a looming financial crisis grew. The move slightly reassured investors, but shares in several US banks were hammered on fears of a run by customers.
Investors tensely await new decisions as the US Federal Reserve is scheduled to meet on interest rates next week.
