UK stocks took a sharp hit on Friday as worries over the health of US regional banks rippled through global markets.

The FTSE 100 dropped about 1.5%, while the more domestically focused FTSE 250 fell 1.6%. Shares in major banks like Barclays and Standard Chartered slid more than 5%, mirroring wider losses across Europe — with Germany’s Dax down over 2% and France’s Cac 40 off by 0.8%.

The sell-off began in the US on Thursday after two regional lenders — Zions Bancorp and Western Alliance — disclosed serious loan problems. Zions said it would take a $50 billion (£37 billion) charge after uncovering two bad loans, while Western Alliance revealed it was dealing with a potentially fraudulent borrower.

The news shook investor confidence, reigniting memories of the Silicon Valley Bank collapse in 2023.

“Investors have been spooked,” said Russ Mould, investment director at AJ Bell. “Even though there’s no sign of trouble at UK-listed banks, markets often react nervously when any cracks appear in the sector.”

He added that concerns about liquidity pressures in the US were adding to the unease. “Banks tapped the Federal Reserve’s short-term lending facility for more than $15 billion (£11 billion) over the past two days — the biggest drawdown since the Covid pandemic.”

Richard Hunter, head of markets at Interactive Investor, said the losses at the US banks appeared “limited and contained,” but admitted the situation had rattled investors.

“While this may turn out to be an isolated incident, it’s brought back unwelcome memories of 2023,” he said. “Even without direct links to the big global banks, the sector as a whole took a hit — with losses of around 3% across the board.”

As stocks tumbled, investors fled to safer assets. Gold prices surged to a new record high, climbing to around $4,380 (£3,260) per ounce on Friday morning. Photo by Kaihsu Tai, Wikimedia commons.