President Obama's proposals to limit the activities of Wall Street firms sent shockwaves through the UK banking sector for a second session today.
Royal Bank of Scotland and Barclays were the biggest casualties in London as investors forecast major disruption to North American operations and expressed fears that other governments will follow suit.
Miners propped up the FTSE 100 Index early on, but this proved to be short-lived as the top flight followed declines of 2% in both of its last two sessions to stand 47.6 points lower at 5287.5 by the mid-point of the day.
Barclays, which acquired Lehman Brothers' North American trading and investment banking assets in 2008, topped the fallers board as its shares dropped 8% in addition to the 6% decline seen at yesterday's close.
President Obama's drive to limit risk-taking could mean that retail banks are banned from using their own money in investments, while they may also face restrictions on owning a hedge fund or private equity fund.
The pressure on Barclays, which fell 23.4p to 259.6p, was compounded by continued rumours that it may need to tap shareholders for fresh capital.
Royal Bank of Scotland was 8% or 2.8p lower at 32.5p while Lloyds Banking Group fell 1.9p to 51.4p, despite initial hopes that its limited American exposure may provide some shelter from today's turbulence.
With the uncertainty prompting investors to favour traditionally defensive stocks, United Utilities lifted 4.5p to 529.5p, Severn Trent added a penny to 743p and Financial Times owner Pearson cheered 4p to 529p.
There was little in the way of corporate news to deflect attention from the banking situation. Improved weekly trading figures from John Lewis, with department store sales up 11.1%, had little impact on the retail sector as B&Q owner Kingfisher fell 0.8p to 222.5p, Argos firm Home Retail dropped 7.7p to 254.4p and Marks & Spencer dipped 2.4p to 348p.
Outside the top flight, a trading update from pawnbroker H&T resulted in its shares falling 9%, even though the company said its 2009 profits will be at the top end of market expectations.
It has benefited from increased gold purchasing levels and a strong price, but investors were spooked by cautious comments about trading prospects in 2010, particularly as it was unable to predict gold buying volumes.
Shares have enjoyed a strong run in recent months but retreated 27.5p to 279.5p after today's update.