London’s FTSE 100 index sank into the red and US banking stocks saw sharp declines amid the fallout from the collapse of Silicon Valley Bank (SVB), sparking fears across Wall Street that interest rate rises may be crippling the banking sector.

It comes despite emergency action in the US to protect customers and a rescue deal in the UK cheered by concerned tech firms.

The top index closed 2.58% lower on Monday, with more than £50 billion wiped off the value of the stock exchange over the course of the day.

At one point in the day’s trading, the FTSE 100 tumbled by more than 2.6%, meaning that it suffered an even steeper decline than at any point following September’s mini-budget, which had been described as the “worst day ever seen in the markets” by one analyst.

Over in the US, investors on Wall Street were hit with fears over the resilience of the banking sector after SVB’s collapse marked the second largest bank failure in the nation’s history.

Furthermore, regulators had announced on Sunday that New York-based Signature Bank had also failed, which was its third largest bank collapse.

Some regional banks came under enormous pressure on Monday as investors had less faith in their survival than the “too-big-to-fail” banking giants.

Shares in First Republic Bank plunged by 78% at one point in Monday morning trading, even after the bank said on Sunday it had strengthened its finances with cash from the Federal Reserve and JPMorgan Chase.

But unlike in the UK, the US’s top index, the S&P 500, had picked up by about 0.35% by the time European markets closed.

It followed President Joe Biden reassuring US residents that the nation’s financial systems are sound.

He said “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them.”

Nevertheless, he promised to look at new banking regulation to make it less likely that such a large bank failure can happen again.

Meanwhile, HSBC’s £1 deal to take over the UK arm of failed Silicon Valley Bank (SVB UK) did not halt the slide on the London market as fears over contagion mounted.

In the UK, banks were heavily lower after steep falls on Friday, with international bank Standard Chartered sinking to the bottom of the FTSE 100 with a 6.9% drop, and Barclays down by 6.3%.

Other UK banks were also caught up in the rout, with Lloyds Banking Group closing 5.1% lower, while NatWest was down 4.8% and HSBC down 4.1%.

Top European markets finished the day even more scathed than in Britain, with the German Dax tumbling more than 3% and the French Cac 40 declining 2.9% at close.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, warned that jitters will remain over the long-term repercussions of the collapses.

She said: “Joe Biden’s words of reassurance did little to calm markets as worries raced around that other smaller US banks could become the latest dominos to fall.

“His admission that fresh regulations may be needed to stop further failures exposes weaknesses in the current system and now lawmakers will be asked to toughen the rules.

“So, even though the collapse has centred on a small tech-focused corner of the financial system, the fall-out risks spreading.

“The era of cheap money has hurtled to an end and investors are waking up to some dramatic highly unintended consequences.”