The European Central Bank has carried through with a large interest rate increase, brushing aside predictions it might dial back as US bank collapses and troubles at Credit Suisse feed fears about the impact of higher rates on the global banking system.

The ECB hiked rates by half a percentage point on Thursday, underlining its determination to fight high inflation.

In a statement, the bank called the banking sector in the 20 eurozone countries “resilient”, with strong finances.

It says it is “monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area”.

ECB president Christine Lagarde said last week that it was “very likely” the bank would raise its benchmarks by a half-percentage point, part of a series of rapid rate hikes aimed at getting inflation down from 8.5% — far above the bank’s target of 2%.

That was before Silicon Valley Bank in the US went under last week after suffering losses on government-backed bonds that fell in value due to rising interest rates.

Then, globally connected Swiss bank Credit Suisse saw its shares plunge this week and had to turn to the Swiss central bank for emergency credit.

The troubles at Credit Suisse dragged down the shares of big European lenders such as Deutsche Bank, BNP Paribas and Societe General on Wednesday, but shares recovered on Thursday.

Analysts say the share sell-off was fed by investor fear that banks took added risks to increase investment returns during years of very low interest rates and some may have failed to safeguard themselves against those holdings turning sour as rates rise.

Similar questions are being raised about what the US Federal Reserve will do at its rate meeting next week.

Chairman Jerome Powell said last week that the ultimate level for rates would be “higher than previously anticipated”, leading some analysts to predict the Fed would raise by half a point after slowing the pace to a quarter-point in February. Since then, expectations have shifted back toward a quarter-point.

European finance ministers have said their banking system has no direct exposure to the failures of Silicon Valley Bank and others in the US. Analysts say the European banking system instituted wide-ranging safeguards after the global financial crisis that followed the collapse of US investment bank Lehman Brothers in 2008 and led to 600 billion euros in taxpayer-funded bailouts of European banks in 2008-2012.

The sweeping post-Lehman banking reforms enacted by the European Union forced banks to hold thicker financial cushions against losses and put the biggest banks under the watchful eye of the ECB, taking them away from national supervisors who were considered to have turned a blind eye as problems built up at their home banks.

European banks also observe international rules that raised the amount of ready cash they have to keep on hand to cover deposits. Smaller US banks including Silicon Valley were exempt from that rule.

The ECB has been raising rates at an unprecedented pace to contain inflation fuelled by higher energy prices tied to Russia’s war in Ukraine.

The benchmarks affect the cost of credit across the economy, making it more expensive to buy things or invest in new production. That cools demand for goods and eases upward pressure on prices.

The ECB’s rate for lending to banks was raised to 3.5%, and the rate it pays on deposits it takes from banks was lifted to 3%.