Shares of major banks plunged as investors feared that Washington's bailout efforts were stalling, potentially forcing President Barack Obama's newly installed government to take far more dramatic steps to prop up the U.S. financial system.
No major bank was spared the carnage. Bank of America's shares plunged 29 percent; Citigroup's 20 percent. State Street Corp., which reported sharply lower earnings, saw its shares plummet 59 percent.
"The financial stocks got murdered," said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago. "They were basically cut in half."
At the core of the free fall in bank shares were concerns that U.S. officials would need to overhaul their program of shoring up financial institutions, a day after Britain announced its second financial bailout package for its own struggling banks in three months.
Investors are also becoming disheartened that banks such as State Street are continuing to report sharply worse results despite all the bailout efforts to date. The broader economic downturn is only compounding the pain by sapping demand for loans.
The country's economic problems were already high on Obama's priority list, but the breakdown of confidence in the country's banks, occurring on the same day of his inauguration, gave the matter fresh urgency. Attention will remain focused on the banking system on Wednesday as Obama's choice for Treasury Secretary, Timothy Geithner, begins Senate confirmation hearings.