Market turbulence erupts as US regional banks reveal loan losses and alleged fraud
Global stock markets declined sharply while gold surged to a record high as two US regional banks disclosed significant loan losses and a fraud-related probe. The latest disclosures underscored budding credit stress that has investors bracing for possible spillovers into wider financial conditions.
In Europe, major indices opened the day with losses before paring some of the declines. The FTSE 100 slid about 1.5%, Germany’s Dax fell roughly 2%, Spain’s Ibex was down about 0.8%, and France’s Cac 40 dropped around 1.5% at the start of trading. Similar weakness extended to Asia, where Japan’s Nikkei 225 slipped 1.6% and Hong Kong’s Hang Seng retreated by about 2% as concerns over credit quality intensified.
The pullback comes amid heightened caution after revelations from Zion Bancorporation, a Utah-based lender, that it would write off $50 million on two loans. Western Alliance, headquartered in Phoenix, said it had begun legal proceedings over a bad loan worth $100 million. Both banks operate with relatively modest market capitalizations by comparison with larger peers, but their disclosures prompted a broader assessment of risk across the US regional banking sector.
Analysts noted that the risk signals are not isolated. Jim Reid of Deutsche Bank commented that the episode rekindled memories of the regional bank stress that followed the collapse of Silicon Valley Bank in 2023. The concern is whether the recent issues could cascade through the banking network given elevated rates and the expansion of private credit in the economy.
Richard Hunter, head of markets at Interactive Investor, highlighted that markets were facing a “storm clouds” scenario: stretched valuations in areas like AI-related equities, an unresolved government spending impasse, and the tense state of US-China relations. The new focus on local-bank lending practices and potential bad loans adds a fresh layer of uncertainty for investors who are already juggling multiple macro headwinds.
As traders weighed the potential for a domino effect, the gold market attracted buyers as a safe-haven asset. The metal touched a record level near $4,378 per ounce (about £3,262), recording a weekly gain of roughly 8.5% — the strongest weekly performance since the 2008 financial crisis. The surge underscores the demand for a hedge against credit risk and market volatility amid ongoing concerns about banks’ balance sheets.
The broader backdrop includes mounting questions about the health of the US economy’s credit channel. While First Brands, a supplier to the auto sector, filed for Chapter 11 protection, the industry’s risk dynamics have shifted toward private lending and off-balance-sheet financing. Investors are increasingly scrutinizing the sustainability of earnings in an environment of higher funding costs and fragmented credit markets.
Market participants and strategists are closely watching central-bank policy as they assess the likelihood of further rate cuts this year. The immediate priority remains the health of the financial system and the potential for credit-tightening to dampen growth. If lenders curb lending or tighten underwriting standards, consumer and business activity could feel the impact in the quarters ahead.
In the near term, investors may seek safer assets and lower-risk exposures, while remaining vigilant for further disclosures from regional banks. The evolving narrative around lending practices, loan quality, and regulatory oversight will likely drive volatility as markets try to price in the probability of continued stress or a stabilization in credit conditions.
What to watch next
- Updates on US regional banks’ loan portfolios and any new liquidity measures
- Economic data indicating the resilience of consumer spending and business investment
- Regulatory actions or stress tests that might tighten financial conditions
