Bank stocks have taken a serious beating lately, and further declines could hamper their ability to lend, which could damage and already weak economy, says Goldman Sachs Asset Management Chairman Jim O'Neill.
Fears that a debt crisis in Europe will threaten European banks and spread to the U.S. continues to pound financial stocks.
"We need to break this spiral of the severe dropping in the equity value of major banks in Europe and the U.S., particularly in circumstances where our policymakers have not been, let’s say, particularly generous to banks," tells CNBC.
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Continued stock declines "could take back us down the path of three years ago where [U.S.] banks are having to draw the horns in and not lend, and that builds on the weakness of the economy," he said.
"We need to get out of that spiral quickly."
Ratings agencies have stripped the U.S. of its AAA rating and markets are worried that France is next.
“At a certain level of equity it would seem that Societe Generale and the [French] banks are in pretty good shape," O'Neill says.
"But if the equity price keeps dropping, then the situation changes quite quickly."
In Europe, mere talk of a downgrade is wreaking havoc on markets and does not reflect the true health of the French financial sector, experts say.
"The rumors ... are having a catastrophic impact," says Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris, according to Investors Business Daily.
"This has nothing to do with fundamentals."
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