European governments provided further support to ailing banks but failed to reverse mounting gloom on Wednesday, with a UK politician calling for nationalisation of two top lenders and Barclays shares sinking.
Belgium is planning a second round of help for banks, but the plan failed to restore confidence and shares in KBC tumbled as much as 18 percent.
France and Germany also offered more help, but the prospect that more dramatic intervention will be needed as economies tip into recession tugged the European banks index to a 16 year low.
British banks led the fall, with Barclays crashing 20 percent to 58 pence and Lloyds Banking Group down 15 percent at 38p as concern mounted that they and Royal Bank of Scotland could need more state help or be fully nationalised.
The chairman of the British parliament's Treasury Committee urged the government to nationalise RBS and Lloyds as the global financial crisis deepens.
"The risk of nationalisation is such that the risk/reward doesn't compute. It's a speculative buy at best," one dealer said in regard to Barclays.
Barclays has avoided selling the government an equity stake, but analysts said it would be next in line if its rivals go into state hands. It said on Friday its 2008 profits would be above 5.3 billion pounds, but the update has failed to reassure investors about its capital position.
STATE LIFELINES
Britain threw its banks a second multi-billion pound lifeline on Monday but a lack of detail failed to reverse the mood among investors getting used to a diet of bad news.
Belgium could follow and launch a second bailout for lenders, after banks have been hit by a fresh wave of concern about their capital position.
Finance Minister Didier Reynders said a committee of experts would be asked to assess the options for the plan.
"This time we must be there early enough to avoid having to save a bank in the middle of the night again," Finance Minister Didier Reynders told Belgian news agency Belga late on Tuesday.
Belgium has already helped bail out Fortis and Dexia and provided 3.5 billion euros to KBC, but KBC's shares have been dogged by mounting speculation it will be forced to make further writedowns of its credit portfolio and need fresh funds.
KBC shares were down 13.9 percent at 8.4 euros, after falling as low as 8 euros.
The European DJ Stoxx Banking index was down 3.8 percent at 110.6 points, its lowest level since 1993.
It followed a plunge by U.S. bank shares on Tuesday, when Citigroup and Bank of America hit their lowest levels since the early 1990s as investors fretted that many banks are running short of capital.
France confirmed it would provide a second tranche of aid to its banks of up to 10.5 billion euros in a bid to shore up banks' capital, roughly the same size as the first round last year.
But BNP Paribas continued to be hit by the threat it will need to raise more capital, and its shares fell 9 percent.
SocGen bucked the gloom and added 1.3 percent after saying its 2008 net profit should be around 2 billion euros, below forecasts but showing more resiliance than many rivals.
Credit Suisse, Switzerland's second largest bank, could report a full-year loss of up to 6 billion Swiss francs ($5.25 billion), according to a local newspaper report.
The Handelszeitung newspaper cited an unnamed senior Credit Suisse banker as saying the bank made a trading loss of about 1 billion francs per week in October and a full-year loss of 6 billion.
Credit Suisse warned early in December it had suffered a loss of around 3 billion franc in October and November and some analysts are sceptical about the report, saying the bank could take a hit of nearly 5 billion francs in the fourth quarter alone.
Stricken German investment bank Hypo Real Estate said late on Tuesday it would get an additional 12 billion euros in state guarantees and was still in talks with the government about further support. Its shares fell 7 percent.
