Investors crept cautiously into bank stocks on Tuesday, with share prices including First Republic Bank's moving higher as immediate concerns about smaller US lenders and further market ructions eased in the wake of the rescue of Credit Suisse.
After a tumultuous 10 days which culminated in the 3 billion Swiss franc ($3.2 billion) Swiss-regulator-engineered takeover of Credit Suisse by its rival UBS, attention has shifted to this week's meeting of the US Federal Reserve.
The burning question is whether the Fed's relentless rate hikes, which some have blamed for sparking the biggest meltdown in the banking sector since the global financial crisis, might be at an end.
Policymakers from Washington to Europe have stressed that the turmoil is different from the crisis 15 years ago, saying banks are better capitalised and funds more easily available.
But the sudden shock means traders have now increased their bets the Fed will pause its hiking cycle on Wednesday to try to ensure financial stability, although they remain split over whether the central bank will raise its benchmark policy rate.
But as concern over the health of mid-sized US lenders lingers, Treasury Secretary Janet Yellen said the country's banking system was sound, despite recent pressure.
Yellen said she was committed to taking actions that would mitigate risks to financial stability and taking necessary steps to ensure the safety of deposits and the US banking system.
The collapse of US lenders Silicon Valley Bank (SVB) and Signature Bank triggered the demise of 167-year-old Credit Suisse and investors are concerned about potential financial time bombs ticking elsewhere in the system.
Yellen's reassurances were echoed in Britain by finance minister Jeremy Hunt, who said banks and the financial system there were well placed to cope with the problems, and by Swedish Central Bank Governor Erik Theeden.
"We should also feel secure in the fact that the authorities that have the job to deal with this are working closely together and are working with the government. So there is good capacity to act should this head into another phase," Theeden said.
The European Central Bank's top bank supervisor Andrea Enria said euro zone banks on average increased their capital ratios in the final quarter of last year and remain solid, adding that funding and liquidity positions were not "materially affected" by the Credit Suisse crisis.
Earlier, he had warned banks against being "caught off guard" by rising interest rates, in remarks the ECB said were drafted in February, before recent market upheavals.
Worries about a new financial crisis contributed to a tumble in German investor sentiment in March, the ZEW economic research institute said.
But in Switzerland, the Bankers Association said credit supply would not be restricted, adding it was convinced the Swiss banking sector still had a "prosperous future".
Credibility "is not destroyed, but it's not good," the association's chairman Marcel Rohner told a news briefing.
As the rescue of Credit Suisse assuaged the worst fears of systemic contagion, European bank shares rose, while Asian stocks lifted off their lows.
Shares of beaten-down U.S. regional lenders climbed, including First Republic Bank, while big U.S. banks such as JPMorgan, Citigroup and Bank of America also rose.
The central bank to the world's central banks, the Bank for International Settlements, said it fully supported recent actions taken by the likes of the Swiss National Bank and Federal Reserve to address banking system problems.
"We support in full all the actions central banks have taken," the head of the BIS, Agustin Carstens, said.
