March 23 Reuters Banking shares dropped in Europe on Thursday as the instability that rippled through the global banking system this month is prompting investors to adjust to more challenging economic and lending conditions ahead.

The Federal Reserve on Wednesday indicated it was on the verge of pausing further increases in borrowing costs after the collapse of two U.S. lenders earlier this month triggered worries of contagion throughout the banking system.

Fed Chair Jerome Powell said the banking industry stress could trigger a credit crunch with significant implications for a slowing U.S. economy.

The turmoil that began in the United States spread quickly around the globe, ensnaring one of Europe39;s biggest banking names in 167yearold Credit Suisse AG, which was forced into a shotgun marriage with Swiss peer UBS Group to avert a wider crisis.

Swiss National Bank Chairman Thomas Jordan said on Thursday the next two weeks will be vital to making sure the rescue was a success. Swiss authorities had urged the banks to come together and gave financial guarantees worth up to 260 billion Swiss francs 280 billion to get the deal done.

At this moment the focus has to be that we can maintain financial stability and that the closing of the deal is smooth and fast, Jordan told a news conference after SNB hiked rates by half a percentage point.

The Bank of England was also expected to deliver its eleventh straight interest rate hike later in the day, even as financial…