U.S. stocks drop on worries about Credit Suisse, global banking A drop in shares of European lender Credit Suisse sparked fears that banking turmoil is spreading around the world.

Stocks drop as fears grow about the global banking system

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MARY LOUISE KELLY, HOST:

In a week that began with the collapse of a regional bank in Silicon Valley, one of the largest banks in Europe is now in trouble. Credit Suisse, a major bank in Switzerland, saw its shares plunge as investors worried about its financial health following the failure of two American lenders. While U.S. stocks dropped today, the Dow Jones ended the day down nearly 300 points, global markets also reeling over contagion fears. For more, we want to turn to NPR's Rob Schmitz - he is in Berlin - and David Gura in New York. And, David, I'll let you kick us off. Why? Why are fears about banks now spreading globally even though these two U.S. banks got rescued?

DAVID GURA, BYLINE: So the bottom line is, Mary Louise, Wall Street is still not buying it, that the banking system is safe, as President Biden said on Monday. You know, what he said and the emergency actions the government has taken have not calmed investors, who are still shellshocked by what's happened over the last few days. There is still worry other banks may be vulnerable to collapse. Even if there are no indications, there are widespread issues. Today, we saw shares of small regional banks sink again after they regained some ground yesterday. California-based First Republic Bank ended the day down more than 20%. But what supercharged today's selloff, Mary Louise, what's really a very different banking story, one that's taking place in Europe with Credit Suisse.

KELLY: Yeah, well, let's hear from Europe now. Rob Schmitz, tell me a little bit more about Credit Suisse and what is happening over there.

ROB SCHMITZ, BYLINE: Yeah, Credit Suisse is, as its name implies, a Swiss bank. It's 167 years old. And just 15 years ago, it was the seventh-largest bank by market capitalization in the world. But for the past several years, it's been in a lot of trouble. It's been involved in several scandals involving tax evasion, money laundering. The latest one saw one of its advisers go to prison for laundering money on behalf of the Bulgarian drug trafficking ring. And since last autumn, shareholders have fled with their money because there's a sense that the bank is poorly managed. So today's news wasn't a big surprise for those who've been watching Credit Suisse's ongoing decline. And it's important to point out here that this bank's problems are different from those that led to the failure of Silicon Valley Bank and Signature Bank. Yet the markets are reacting in similar ways.

KELLY: Well, and that is what's so intriguing because when you say the underlying problems are really different at the American banks and Credit Suisse, yet we have this crash today in shares in Switzerland.

SCHMITZ: Yeah, that's right.

KELLY: Why?

SCHMITZ: Well, you know, the head of the Saudi National Bank, that's one of Credit Suisse's major shareholders, was asked on Bloomberg Television whether he would be injecting more capital to help Credit Suisse. His response - absolutely not. And that led to a selloff of the bank's shares. Now, the Swiss National Bank has assured investors it will step in and provide liquidity to Credit Suisse if it needs it. But this news, combined with the U.S. bank failures, now seem to be scaring off European investors writ large. This is now spreading to other European banks. Germany's Commerzbank and Deutsche Bank are both down more than 9% today. French banks BNP Paribas and Societe Generale are down more than 10%. So this has triggered a massive selloff, and we saw it reverberate throughout European markets today.

KELLY: OK, so let's turn back to the U.S. David Gura, I'll ask the unanswerable, what's going to happen next? What are you watching for?

GURA: Well, the Justice Department is looking into what happened with Silicon Valley Bank, and the Federal Reserve is reviewing the job it did supervising that lender. And on Capitol Hill, lawmakers are already debating new regulations. Senator Elizabeth Warren just introduced a bill that would restore parts of the Dodd-Frank Financial Reform Act that Congress rolled back in 2018. All the while, small regional banks in the U.S. are trying to hold on to customers as they scrutinize and try to shore up their balance sheets. The heads of many of these lenders are speaking out, trying to assure customers and investors that they're in good shape and that Silicon Valley Bank and Signature Bank were very different animals in terms of how big their deposits were and who their clients were. You know, like Rob said a moment ago, what's going on in Europe with Credit Suisse is different than what's happening in the U.S., but its issues are exacerbating this greater anxiety about the health of the broader banking system.

KELLY: Well, and I suppose it's worth stepping back even a little bit more and noting, this is all unfolding at a time of some concern about the U.S. economy in general.

GURA: There are all these doubts about the economy. The Federal Reserve is aggressively raising interest rates to fight high inflation, and there are mixed signals that strategy is working. Today we saw retail sales have fallen after they surged in January. That's an indication the U.S. economy may be starting to slow as a result of those rate hikes. But while data have shown high inflation is easing, it's still nowhere near the Fed's target. I asked Karen Petrou about the timing of this. She's an economic consultant with Federal Financial Analytics.

KAREN PETROU: There's never a good time for a banking (laughter) run or a banking crisis. And no matter the economy, banking crises are macroeconomic death machines.

GURA: The failure of these two banks and the intervention that we saw from the government, from the Treasury Department, the FDIC and the Federal Reserve, has made the Fed's job harder, given how delicate the economy is right now, Mary Louise. And the Fed is scheduled to start its next two-day meeting on Tuesday. And now the stakes for that meeting are even higher.

KELLY: Rob Schmitz in Berlin, I'll give you the last word in the minute or so we have left. I'll ask you the same question I asked David. Where do you see things going next? What are you watching for in the European economy?

SCHMITZ: Well, Europe's economy is already weakened due to the pandemic and from the energy crisis that was sparked by Russia's war in Ukraine. So what happened today was, in some ways, bound to happen at some point. And it appears that Credit Suisse may have been a catalyst. There are also big concerns here in Europe about interest rates. David mentioned the Fed raising interest rates. The European Central Bank is expected to meet tomorrow to discuss a possible rate hike of a quarter to a half percent to try and get a hold on Europe's rising inflation. All in all, it is not a pretty picture here in Europe, and it's mirroring what's happened in the U.S. as well.

KELLY: All right. That is NPR's Rob Schmitz getting us up to speed on what's happening in Europe. He's based in Berlin - also, David Gura monitoring Wall Street from New York. Thanks to you both.

GURA: Thank you.

SCHMITZ: Thank you.

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