European stocks tumbled on Friday as growing credit concerns from the U.S. banking sector reverberated through global markets. The Pan-European Stoxx 600 index fell 1.5% by mid-morning in London, with every major sector trading in the red.

The decline was most severe in the banking sector, where the Stoxx Europe 600 Banks Index dropped nearly 2.8%, marking one of its sharpest weekly declines this year. The sell-off followed heavy losses in U.S. financial shares a day earlier, with regional banks and Jefferies Group seeing significant declines amid rising fears of bad loans.

Across Europe’s major markets, Germany’s DAX and Italy’s FTSE MIB both sank more than 2%, while the U.K.’s FTSE 100 and France’s CAC 40 slipped 1.5% and 0.7%, respectively.

The turmoil also extended to corporate and defense stocks. BBVA shares climbed 5.7% after its €16.32 billion hostile takeover bid for Banco Sabadell failed, while Sabadell’s shares dropped 6.1%. Meanwhile, the Stoxx Europe Aerospace and Defense Index plunged 3%, amid reports that U.S. President Donald Trump and Russian President Vladimir Putin will meet in Hungary to discuss the ongoing Ukraine war.

Defense and banking had been two of Europe’s strongest-performing sectors in 2025, gaining 54% and 60%, respectively, before this week’s correction.

On the corporate front, Volvo Group shares slumped 5.4% after the Swedish automaker reported 11.7 billion Swedish kronor ($1.3 billion) in Q3 net profit — above expectations but weighed down by “difficult market conditions” in North and South America.

Elsewhere, investors focused on European inflation data and broader economic signals. ECB Governing Council member Martin Kocher told CNBC that the easing cycle of rate cuts “is close to an end.” In the U.K., growth remained subdued, with GDP inching up 0.1% in August, while Switzerland trimmed its 2026 growth forecast to 0.9% due to tariffs from Trump’s trade policy.

Asian markets mirrored the gloom, with most indices in decline except for South Korea’s Kospi, which hit record highs amid ongoing trade talks with the U.S.