After staging their strongest two-day rally in nearly a year earlier this week, U.S. regional banks reversed course dramatically on Thursday, with the group facing its steepest sell-off since the Trump tariff shock of April 2025.

The SPDR S&P Regional Banking ETF (NYSE:KRE) plunged 6.1% in afternoon trading, logging its worst single-day performance since April 4, when Donald Trump's sweeping Liberation Day tariffs triggered a broad market sell-off.

The sharp reversal is being driven by renewed fears of credit deterioration and unexpected loan losses at some mid-sized lenders—just days after investor optimism surged on hopes of rate cuts and strong bank earnings.

While smaller and mid-sized lenders bore the brunt of the sell-off, the damage also rippled up to larger Wall Street institutions. The Financial Select Sector SPDR Fund (NYSE:XLF) slid 2.8%, making it the worst-performing S&P 500 sector and marking its ...