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.

"This mini banking crisis has increased the chance of recession and accelerated the slowdown timeline for the economy," said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. "It's natural that the Fed should re-examine its course of action, but it's still very clear that while inflation is slowing it's still very much a concern and needs to be brought under control."

All three indexes ended the session deep in negative territory. The Dow Jones Industrial Average fell 1.19 percent to 31,861.98, the S&P 500 lost 1.1 percent to 3,916.64 and the Nasdaq Composite dropped 0.74 percent to 11,630.51.

First Republic Bank plunged 32.8 percent after the bank announced it was suspending its dividend, reversing Thursday's surge which was sparked by an unprecedented $30-billion rescue package from large financial institutions.

"The liquidity injections will not be enough when risks erupt in the banking and financial system," Dong Shaopeng, executive deputy editor-in-chief of the Securities Daily said in a note to CGTN. "Once such a risk exists, more banks will need liquidity injections."

Ratings agency Moody's on Friday downgraded its credit rating on First Republic Bank, citing deterioration in the bank's financial profile and challenges faced by the lender due to increased reliance on funding amid deposit outflows. The agency cut the bank's long-term issuer rating and local currency subordinate ratings to B2 from Baa1.

Among First Republic's peers, PacWest Bancorp fell 19 percent while Western Alliance slid 15.1 percent. U.S.-traded shares of Credit Suisse also closed sharply lower on Friday, down 6.9 percent.

"This goes a lot further than just a run on SVB (Silicon Valley Bank) or First Republic, it goes to the real impact these interest rate hikes are having on capital and balance sheets," Pursche added. "And you're seeing it impact large institutions like Credit Suisse, and that's got people rattled."

Over the last two weeks, the S&P Banking index and the KBW Regional Banking index plunged by 4.6 percent and 5.4 percent, respectively, their largest two-week drops since March 2020.

(With input from Reuters)