Royal Bank of Scotland shares plunged nearly 40% to a 15-year low as speculation mounted over an imminent taxpayer-funded rescue of Britain's banks.
RBS shares hit their lowest point since 1993 and eventually closed more than 39% lower - wiping around £10 billion off the value of the business.
Halifax Bank of Scotland - being bought by Lloyds TSB in a rescue takeover - tumbled 41% while Barclays slid 9% as investors bailed out in the uncertainty.
The falls came in another day of turmoil for bank shares after it emerged top executives had held crisis talks with Chancellor Alistair Darling.
The Government is considering a dramatic intervention to prop up banks' finances by using billions of pounds in public money to take stakes in the business.
The BBC reported RBS, Barclays and Lloyds TSB needed around £15 billion of extra capital each. The banks at the meeting called for the Chancellor to act quickly but Mr Darling did not have a fully-prepared rescue plan, the report said.
The banks' woes hampered a fightback by the FTSE 100 Index after Monday's 7.8% slump - the biggest since Black Monday in October 1987. The Footsie finished up just 16 points at 4605.2.
Meanwhile, savers with internet bank Icesave were warned that they are likely to have to claim their money from depositor compensation schemes.
The Financial Services Authority said it expected the Icelandic authorities to put the firm into insolvency proceedings, which would trigger payouts from the UK's and Iceland's saver protection schemes.
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The warning came after Icesave stopped consumers withdrawing money from their internet accounts after its parent company Landsbanki was placed into receivership this morning.
