European bank stocks took a heavy hit on Friday, with Deutsche Bank falling more than 13 per cent, as policymakers struggled to calm nerves after failures on both sides of the Atlantic.

The Stoxx 600 banks index, which contains the region’s biggest lenders, fell 5.1 per cent by mid-morning, outstripping weakness in broad national indices. Germany’s Commerzbank fell 8.5 per cent while France’s Société Générale lost 7.4 per cent.

“Europe is very tilted towards banks, which have been in the eye of the storm ,” said Emmanuel Cau, head of European equity strategy at Barclays, adding: “There are bank-specific issues to worry about like regulation and deposit safety.”

Deutsche Bank’s 13.5 per cent slide came after a surge this week in the cost of insuring the lender’s debt against default.

The price of the bank’s five-year credit default swaps — derivatives that act like insurance and pay out if a company defaults on its payments — climbed from 134 basis points on Wednesday to 198bp on Friday, according to data from Refinitiv.

Christine Lagarde, European Central Bank president, was briefing the region’s leaders on her institution’s response to the banking crisis at a Brussels summit on Friday morning.

Central banks in the eurozone, US and UK have all pushed ahead with interest rate rises to fight stubbornly high inflation this month, despite the banking sector turmoil, itself partly the result of rapidly increasing borrowing costs over the last year.

“There’s still a nagging question amongst market participants over whether the turmoil in the banking sector is over or if there will be wider contagion,” said Mobeen Tahir, director of macroeconomic research and tactical solutions at WisdomTree Europe.

“It is also now evident from central banks that the turmoil is not going to put a hard brake on their monetary policy actions — that’s sending jitters through markets because it might exacerbate or expose new vulnerabilities in the banking sector.”

Broader European markets fell on Friday, with the Euro Stoxx 600 down 1.7 per cent, Germany’s Dax down 2.1 per cent, France’s Cac 40 down 2 per cent and London’s FTSE 1.9 per cent lower.

Stocks on Wall Street were also expected to open lower. Futures tracking the blue-chip S&P 500 fell 0.7 per cent, while contracts following the tech-heavy Nasdaq dropped 0.4 per cent.

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Global authorities have tried to assuage investors concerns after the failure of several US regional banks, and last weekend’s hasty takeover of Credit Suisse by its rival UBS.

Lagarde said last week said there was “no trade-off” between controlling inflation and fostering financial stability. On Thursday, US Treasury secretary Janet Yellen said regulators were “prepared to take additional actions if warranted” to ensure the safety of bank deposits. But efforts to stem the selling have so far had only fleeting effects.

Dirk Willer, strategist at Citigroup, said it was “too early to tell” whether banking sector stress would have an impact on the wider US economy. But he added that both the Federal Reserve and the ECB had “become more cautious” about tightening monetary policy. He predicted that the US was likely to enter a recession this year, noting that “the banking stress tightens credit”.

Investors are now anticipating that the Fed will pause its rate-raising cycle, keeping rates on hold at its next meeting in May before cutting in September, while anticipating a 0.25 percentage point rise from the ECB meeting and no cuts in 2023.