Morgan Stanley shares led a broad decline among major US banks on Thursday, dropping sharply alongside top asset managers after the firm imposed withdrawal limits on one of its private credit funds. The lender's decision to cap redemptions sent shockwaves through financial markets, with investors reacting to the sudden restrictions on fund liquidity.

Private credit funds have grown rapidly as investors sought higher yields in a low-interest-rate environment, but recent market volatility has exposed vulnerabilities in some strategies. Morgan Stanley's move follows similar actions by other asset managers who have struggled to meet redemption requests amid market stress. The firm's private credit business has expanded significantly in recent years as part of its wealth management and alternative investment offerings.

The market reaction underscores growing concerns about liquidity in private credit markets, which have become increasingly popular but remain less regulated than traditional banking products. With Morgan Stanley shares falling more than its peers, investors are questioning whether other asset managers may follow suit as market conditions remain challenging.