People pass the front of the New York Stock Exchange in New York, Tuesday, March 21, 2023. Stocks are rising on Wall Street, including the banks most beaten down by the industry s crisis. AP
Authorities in leading economies have pledged support for depositors and troubled lenders in efforts to calm the markets following the recent collapse of Silicon Valley Bank and Signature Bank in the United States.
US Treasury Secretary Janet Yellen told a conference of American banks that authorities are ready to protect deposits at other smaller lenders if they face bank runs "that pose the risk of contagion", while adding the sector is now "stabilising".
"Our intervention was necessary to protect the broader US banking system," said Yellen, hinting further interventions could follow "if smaller institutions suffer deposit runs that pose the risk of contagion."
Deposit withdrawals have stabilised after US regulators stepped in last week to ensure SVB and Signature customers would still have access to their funds.
The US Federal Reserve has introduced a new lending tool for banks in an effort to prevent a repeat of SVB's quick demise.
It also launched a drive with other major central banks this week to improve banks' access to liquidity, action which Yellen said "reduced the risk of further bank failures."
The head of the American Bankers Association, Rob Nichols, said the sector "remains strong, resilient, well-capitalised, liquid and serves customers and communities extremely well".
Andrea Enria, head of the ECB Supervisory Board, told a European Parliament hearing that European banks still retained the "strong trust of depositors" despite a "period of turmoil," adding there was no sign of major outflows of deposits from European Union institutions.
The turmoil led to the Swiss government-backed buyout of troubled Credit Suisse by UBS for around $3.2 billion after frantic negotiations over the weekend.
But analysts warned it was too early to declare victory, with the Credit Suisse takeover raising questions about which bank could be next on the chopping block.
"It's been a wild couple of weeks and while I, along with everyone else, am hopeful that the worst is behind us, I can't say I'm particularly confident," said Craig Erlam, analyst at OANDA trading platform.
While authorities can be commended "for their firefighting skills, only time will tell if they've been successful in extinguishing the flames," he said.
Wall Street added half a percent two hours into trading while Europe's main indices finished around one and a half percent in the green as a relief rally continued following last week's drubbing, with European bank shares surging, notably Commerzbank and Barclays.
On Wall Street, shares of First Republic Bank rebounded by more than 40 percent as the Wall Street Journal reported that JPMorgan Chase was leading talks with other big banks on providing fresh support to the troubled lender.
Major US banks already agreed to inject $30 billion into First Republic last week.
The spotlight will turn to the US Federal Reserve on Wednesday, when it will announce its latest interest rate decision.
The upheaval in the banking sector has led traders to re-evaluate their bets on the Fed's plans, with speculation swirling that it could cut borrowing costs by the end of the year to provide further stability.
This would follow a series of aggressive rate hikes carried out by the Fed and other central banks since late 2021 aimed at cooling soaring inflation.
Before the banking sector's woes began, expectations were for US borrowing costs to go as high as six percent, but now forecasts are for them to end at around four percent from a current 4.5-4.75 percent.
Key figures around 1650 GMT
New York - Dow: UP 0.5 percent at 32,417.22 points
London - FTSE 100: UP 1.8 percent at 7,536.22 (close)
Frankfurt - DAX: UP 1.8 percent at 15,194.77 (close)
Paris - CAC 40: UP 1.4 percent at 7,112.91 (close)
EURO STOXX 50: UP 1.8 percent at 4,181.58
Hong Kong - Hang Seng Index: UP 1.4 percent at 19,258.76 (close)
Shanghai - Composite: UP 0.6 percent at 3,255.65 (close)
Tokyo - Nikkei 225: Closed for a holiday
Euro/dollar: UP at $1.0771 from $1.0726 on Monday
Pound/dollar: DOWN at $1.2187 from $1.2280
Euro/pound: UP at 88.35 pence from 87.32 pence
Dollar/yen: UP at 132.27 yen from 131.32 yen
Brent North Sea crude: UP 1.3 percent at $74.77 per barrel
West Texas Intermediate: UP 1.4 percent at $68.58 per barrel