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Fresh fears shook British banks today after US giants Citigroup and Bank of America said they may have to raise billions of dollars more to safeguard their future.
Following "stress-testing" by the US regulators, the ailing banks have been told they need extra capital to cushion them against potential future losses.
The Federal Reserve, which conducted the stress tests, said that the banks would not be able to weather a significant deepening of the recession.
Shares in both banks fell 8% in early trading in New York.
It was yet another blow to Bank of America chief executive Ken Lewis and his counterpart at Citi, Vikram Pandit, who are battling to save their jobs in the fallout from the financial crisis.
Lewis - blamed for the disastrous $50 billion takeover of failing Merrill Lynch last year - faces a shareholder revolt tomorrow. Both Lewis and Pandit are objecting to the findings by the Fed, which has carried out stress tests on 19 large US banks.
The full results will be published on Monday, but the Wall Street Journal report about the preliminary findings raised fears that banks around the world, including in the UK, may still be short of cash despite raising billions from governments and investors.
"The read-across for the UK is a reminder that capital concerns about banks have not gone away," said Danny Clarke at Shore Capital.
Chancellor Alistair Darling is expected to announce in next month's banking White Paper that "too-big-to-fail" banks such as HSBC, Lloyds, Royal Bank of Scotland and Barclays should hold more capital than others.
Bank shares were on the slide in London and the FTSE 100 index fell 89.07 to 4077.94. Ian Griffiths, a dealer at CMC Markets, said: "Worries that both Citigroup and Bank of America will have to raise capital are spooking the sector.The news will worry investors that there could be more surprises within the report." Analysts believe regional banks heavily exposed to commercial property, such as Wells Fargo, Fifth Third and Regions Financial, could have fared badly in the tests.
Any bank told that it needs more capital will be given six months to raise it from private investors, financial institutions or the US government.
Bank of America has already taken $45 billion of US taxpayers' money and Citi has received $50 billion.
