Washington (AFP) - President Joe Biden sought to reassure Americans over the country’s financial system Monday as more US banks and leading European lenders were hammered amid contagion worries.

Silicon Valley Bank – a key lender to startups across the United States since the 1980s – collapsed after a sudden run on deposits, prompting regulators to seize control Friday.

On Sunday night, US federal authorities stepped in to protect all depositors at SVB, and regulators took over a second troubled lender.

“Americans can have confidence that the banking system is safe,” Biden said in a brief White House address. “Your deposits will be there when you need them.”

But there were immediate signs of pressure at additional US lenders.

San Francisco-based First Republic Bank shares plunged around 62 percent, while Ohio-headquartered KeyCorp lost 27 percent and Zion Bancorporation lost 26 percent.

There was also plenty of red on the screens in Europe, where bourses in Paris, Frankfurt and Milan fell around three percent or more.

Germany’s Commerzbank closed down nearly 13 percent, Spain’s Santander shed more than seven percent and the Netherlands’ ING fell nearly six percent.

Credit Swiss, already mired in scandal, closed down nearly 10 percent.

“Far from calming nerves, fear of contagion has ramped up further with investors dumping risk assets across Europe,” City Index analyst Fiona Cincotta told AFP.

“Banks are leading the charge southwards with investors taking aim at Spanish and Italian banks, suggesting that these are considered the weakest links.”

- Recession risk rises -

Most financial market watchers are optimistic that the upheaval will not be comparable to the 2008 financial crisis.

Still, many forecasters see a rising risk of recession, especially in light of expectations that the central banks will continue to lift interest rates.

The next major move is expected Thursday when the European Central Bank meets for a likely half a percentage point interest rate increase.

Biden praised the “immediate” action taken by officials.

In a joint statement on Sunday, the US Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Treasury Department said SVB depositors would have access to “all of their money” starting Monday.

They added that depositors in Signature Bank – a New York-based regional-size lender with significant cryptocurrency exposure that was shuttered on Sunday after its stock price tanked – would also be “made whole.”

The Fed announced it would make extra funding available to banks to help them meet the needs of depositors, which would include withdrawals.

While the government is ensuring that SVB depositors get their money back, “no losses will be borne by the taxpayers,” Biden said.

Biden said the management of the failed banks would lose their jobs and that shareholders would not have their losses covered.

But the spectacular speed of SVB’s collapse also added scrutiny on regulators, with analysts noting that Fed Chair Jerome Powell failed to flag an SVB-type problem last week in two days of congressional testimony, suggesting the central bank was caught off guard.

“The Fed has a real credibility problem as a regulator,” said Briefing.com analyst Patrick O’Hare. “It’s not a good look.”

The Fed late Monday afternoon announced a review of the supervision and regulation of Silicon Valley Bank, an acknowledgement that the crisis had caught the central bank off-guard.

“We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” said Fed vice chair for supervision Michael Barr.

- European stocks fall -

In Britain, banking giant HSBC bought SVB’s UK division for just £1 ($1.2) in a rescue deal overseen by the Bank of England and the government. However, French and German authorities said there were no risks to their financial systems.

The British government’s SVB UK rescue deal also guarantees deposits of customers, which includes major businesses in the technology and life science sectors.

EU economy commissioner Paolo Gentiloni told reporters that “we don’t see it as a significant risk.”

However, European stock markets fell deeper into the red on Monday and most Asian indices finished lower, with banks taking a hit.

Little known to the general public, SVB specialized in financing startups and had become the 16th largest US bank by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.

Oxford Economics said in a note that the developments “should not have significant broader implications for the economy and are not a sign of systemic risks to the banking sector.”

However, Oxford said the United States will probably undergo a “mild recession” in the second half of 2023.

“The Federal Reserve will continue to tighten until they break something,” it said. “This is the first major sign of that happening, and as they continue to increase rates there are likely to be other signs.”