Fears that Ireland is heading for a Greek-style bailout swept through the UK banking sector today amid mounting worries about their exposure.
Part-nationalised RBS was the worst impacted, down 4% at one stage, as investors fretted over its vulnerability to an Irish crisis through the group's Ulster Bank subsidiary.
The wider FTSE 100 Index also slipped into the red amid speculation of a worsening financial crisis in Ireland that could see the country turn to rescue cash to avoid bankruptcy.
Ireland's cost of borrowing has reached its highest level since the launch of the European single currency.
The yield on a 10-year bond reached almost 9% yesterday.
In currency trading, the euro was likewise under pressure, down against the US dollar and the pound.
RBS was not the only bank seeing falls, with Barclays down 2% and HSBC off more than 1% in a poor session for blue chip financial stocks.
The International Monetary Fund (IMF) warned over bank exposure to debt-laden eurozone countries earlier this week, which it said could have a knock-on impact on the UK economic recovery.
Joshua Raymond, market strategist at City Index, said experts were anxious over a potential "domino effect" across the banking sector if Ireland's woes impact RBS.
He said: "Some market analysts have estimated the UK bank has exposures roughly totalling £42.2bn (€49.84bn) worth of Irish debt and so any escalation of its current problems could create a domino effect amongst those banks that have a direct or indirect association with its debt."
Concerns over Ireland centre around its mammoth bank bailout - the world's costliest when measured per capita - with some worried it will overwhelm the country's finances and force the Irish Government to seek a financial rescue from eurozone partners.
The effect of this on its borrowing rates pose a serious headache for Ireland, making it highly expensive to borrow money.
Central bank governor Patrick Honohan has dismissed fears that Ireland will need to tap rescue funds, insisting that Budget measures will resolve the nation's financial woes and restore investor confidence.
But the Budget has to get passed first on December 7 and experts remain concerned that Ireland is already effectively being shut out of credit markets.
It could be forced to follow in the footsteps of Greece, which was saved from imminent default on its loans in May, when it received a €110bn rescue loan from the other 15 eurozone nations and the IMF.
The Ireland issue comes as the G20 economic summit takes place in Seoul.
European Commission President Jose Manuel Barroso reportedly said yesterday at a briefing on the sidelines of the meeting that "in case of need, the EU is ready to support Ireland".
He noted there were "necessary instruments" in place for that support.