Erasing its burst of the previous day, the flagship CAC 40 index fell 3.58% to 6,885.71 points, signing its worst session since March 2022.

On Wednesday, concerns about the banks' situation focused on Credit Suisse's difficulties, after its largest shareholder, Saudi National Bank, ruled out any increase in the capital of the troubled bank.

"Fears have increased about Credit Suisse, one of the 30 systemic banks," which are likely to have knock-on effects on the entire banking system, said Jeanne Asseraf-Bitton, head of research and strategy at BFT IM.

This situation translates into a "very strong risk aversion" and "a huge retreat towards safe havens" such as government bonds, said Ms. Asseraf-Bitton, interviewed by AFP.

In the sovereign debt market, all rates sank, illustrating the fact that investors expect central banks to adopt more flexible communication in their monetary normalization in the coming days than at their previous meetings.

The yield on the French two-year bond fell violently by 53 basis points to 2.52% and its German counterpart by 48 basis points to 2.39% around 17:30 GMT.

The wave of stress at the banking level is one of the consequences of the tightening of central banks' monetary policy, as the higher rates rise, the lower the value of bonds on banks' balance sheets.

"This is going to be a real challenge tomorrow for the European Central Bank," which must "assess the consequences of what happened in the United States and the risks caused by Credit Suisse," Asseraf-Bitton said.

The ECB "may want to calm the market" by being more flexible than at previous meetings "but it is a double-edged sword" since inflation persists and "by taking a break, it can raise fears about the state of the financial system". However, she continues, "it should not mean that there is an emergency" with regard to financial stability.

Panic on banking stocks

The banking sector has been hit hard by investors' mistrust of the sound banking system strained by the collapse of Silicon Valley Bank (SVB) and Credit Suisse's difficulties.

Recording the biggest drop in the CAC 40 index, Societe Generale plunged 12.18% to 21.50 euros, while BNP Paribas gave up 10.11% to 52.03 euros.

The railway manufacturer Alstom tumbled 10.45% to 23.23 euros, the second largest decline in the CAC 40.

Defensive stocks Sanofi (+0.89%) and Orange (+0.60%) were the only ones to keep their heads above water.

© 2023 AFP