Wall Street closed lower on Friday, marking the end of a tumultuous week dominated by an unfolding crisis in the banking sector and the gathering storm clouds of possible recession.

The Dow Jones Industrial Average plummeted 384.57 points, or 1.2%, to 31,861.98, the Nasdaq slid 0.7% and the S&P 500 was down 1.1%.

For the week, while the benchmark S&P 500 ended higher than last Friday’s close, the Nasdaq and the Dow posted weekly declines.

SVB Financial Group announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank, which sparked fears of contagion throughout the global banking system.

“(The sell-off) is a bit of an overreaction,” said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “However, there is validity to some of the concerns regarding overall liquidity and a potential liquidity crunch.”

Big banks including JPMorgan Chase and Morgan Stanley threw a $30 billion lifeline to First Republic on Thursday, calming some nerves and helping stocks notch gains in the previous session.

Shares of First Republic fell 33% after the bank suspended its dividend payout.

Investors are now looking ahead to the Federal Reserve’s interest rate decision, due next week, to gauge how it will tame inflation.
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Peers PacWest Bancorp fell 19% while Western Alliance slid 15%

Big US banks including JPMorgan, Citigroup and Wells Fargo were also down between 3% and 3.9%.

“Deposits have fled from regional banks like First Republic into the big banks who are now bailing them out by putting the deposits back in. But it doesn’t solve the problem,” said Thomas Hayes, chairman at Great Hill Capital LLC.

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“Until you stop the deposit flight from regional banks into the systemically important banks that are too big to fail, it doesn’t matter how much money you pour into the bucket.”

The news of the rescue came on the heels of a 50-basis-point rate hike by the European Central Bank, which remains laser-focussed on taming inflation despite concerns about the region’s banks after troubles emerged at Credit Suisse.

Investors are now looking ahead to the Federal Reserve’s interest rate decision, due next week, to gauge how it will tame inflation.

As US Treasury yields fell, megacap growth stocks Microsoft and Alphabet rose 1.2% and 1.4% respectively, providing some support to the Nasdaq which is looking at its biggest weekly percentage gain since November.

Money market participants now see a 72% chance of the Fed raising rates by 25 basis points on March 22.

Meanwhile, data showed production at US factories edged up in February.

On a positive note, shares of FedEx rose 8% after the delivery giant raised its full-year earnings forecast.