(Bloomberg) -- European bank stocks tumbled, tracking steep declines in US and Asian peers on concerns that signs of distress at Californian lender SVB Financial Group could be an indicator of much broader dangers.

The Stoxx 600 Banks Index slumped 3.6% as of 11:47 a.m. in London, the biggest drop since September. All 42 members of the gauge declined, with Germany’s Deutsche Bank AG dropping the most, down 7.2%.

Banks have been at the forefront of Europe’s stock market outperformance in 2023 as rising interest rates boost margins and lenders announce large returns to investors through buybacks and dividends. Optimism toward the sector was dealt a blow late Thursday after Silicon Valley-based SVB Financial took steps to shore up its capital position, stoking concern that soaring rates are eroding balance sheets across the financial industry.

SVB slumped 45% in US premarket trading, adding to Thursday’s 60% losses. Other US banks were also poised to extend the previous day’s steep drops, with JPMorgan Chase & Co. and Bank of America Corp. both down about 1%.

“It surely shows how nervous the market is after all when problems at a relatively small Californian bank are enough to shake Wall Street’s financial behemoths,” said DWS Group Chief Investment Officer Bjoern Jesch.

Bank Stocks Fall the Most Since 2020 in Wake of SVB’s Nosedive

Adding to the souring sentiment was Silvergate Capital Corp., which said it plans to wind down operations and liquidate after the crypto industry’s meltdown sapped the company’s financial strength.

The KBW Bank Index, which includes US regional lenders, sank 7.7% on Thursday, its biggest drop since June 2020. Financial stocks in Asia followed suit, with the region’s banks falling the most in three years.

According to Alessandro Barison, a portfolio manager at HI Numen Credit Fund, the selloff is overdone. He warned, however, that the net interest income expansion in US banks is probably over.

At Wells Fargo & Co., strategists led by Christopher Harvey said they remain confident in banking industry stability, but added that “risk will likely trade heavy” until the SVB situation is resolved.

--With assistance from Sagarika Jaisinghani and Chiara Remondini.

(Updates with fund manager and strategist comments in last two paragraphs)

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