Bank shares plunged across Europe on Friday amid fresh worries over the financial system, forcing the German chancellor to insist Deutsche Bank was not in danger.
The FTSE dropped by as much as 2.2%, wiping as much as £42bn off the value of major firms.
Shares in Deutsche Bank tanked by more than 14% before midday and credit default swaps – which are used by Deutsche’s bondholders as insurance should it fail – soared.
In the UK, Barclays, NatWest and Standard Chartered saw their shares fall by around 6%.
It comes after the collapse of two US banks and the rushed takeover of Swiss giant Credit Suisse by its rival UBS.
As the value of Deutsche Bank continued to plummet, German Chancellor Olaf Scholz urged calm, saying there was no question about its future.
“Deutsche Bank has thoroughly reorganised and modernised its business model and is a very profitable bank,” he told reporters in Brussels.
Italy’s Prime Minister Giorgia Meloni said there was no “particular concern” about Europe’s economic stability. “The fundamentals of the system are solid,” she said.
Despite government interventions, investors remain in an “edgy mood”, said AJ Bell investment director Russ Mould.
“It is difficult to see a path through the current turmoil around inflation, rates, geopolitical tensions and the recent banking crisis which doesn’t involve some pain.”
The gloom comes despite statistics showing a big jump in UK retail sales last month, and separate purchasing managers index (PMI) data showing the private sector has been growing so far in March.
But the PMI data showed that while the UK private sector as a whole is growing, the same cannot be said for manufacturers.
Bank of England governor Andrew Bailey said on Thursday that the UK looked increasingly on track to avoid a recession. The Bank upgraded its forecast for the second quarter of this year to see a small increase in GDP rather than the 0.4% drop it had previously expected.
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