London's leading share index opened 2% lower, better than most analysts' forecasts, but went on to fall nearly 7% after the first hour of business.
Royal Bank of Scotland, whose shares dived nearly 40% yesterday ahead of the deal thrashed out overnight, was under more pressure, losing another 9%.
Barclays also slumped nearly a quarter, with Lloyds TSB down 7%.
HBOS, whose own funding problems forced it into a takeover by Lloyds TSB, was the sole Footsie share in positive territory, up 17%.
The plunges came despite widespread support for the Government's plan from the banking sector.
Falls had been expected after turbulence in Asian markets overnight, with Japan's Nikkei sliding nearly 10% at one stage. New York's Dow also fell 5%.
The full article contains 152 words and appears in The Scotsman newspaper.
