HBOS, Britain's biggest mortgage lender, lost a quarter of its market value in London trading on concern over its dependence on funding from capital markets.
HBOS dropped as much as 33 per cent and was down 28 per cent to 166.3 pence at 1.26pm, the worst-performer in the pan-European Bloomberg Europe Banks index.
The Edinburgh-based bank has a market capitalization of £8.8 billion ($16 billion) after losing 77 per cent this year.
HBOS continues to gain "very satisfactory'' access to money market funding and has "taken a cautious outlook to the securitization market and has taken the appropriate action," said spokesman Shane O'Riordain in a telephone interview today.
"That is why our objective is to grow deposits faster than assets."
HBOS, which gains almost half its financing from the money markets, fell 18 per cent yesterday, its biggest decline ever, following the bankruptcy of Lehman Brothers Holdings.
The European Central Bank awarded €70 billion ($99.8 billion) in a one-day money-market auction today and the Bank of England pumped in £20 billion.
"The market has assigned an unduly pessimistic assessment of HBOS's funding position and therefore, as the position is clarified, possibly aided by further evidence of support from the Bank of England, the HBOS share price should recover," wrote analysts Ian Gordon and James Eden at Exane BNP Paribas in London in a note to investors today.
Gordon has an "underperform" rating on the stock. HBOS's funding strength is illustrated by the £10.9 billion of funding it has issued this year, wrote analysts led by London-based James Chappell at Goldman Sachs Group Inc. in a note to investors on September 9th.
"The big concern for them in the short term is confidence," said Leigh Goodwin, an analyst at Fox-Pitt Kelton in London who has an "underweight" rating on the stock.
"If wholesale markets lock HBOS out of funding, they will have to depend more on the central bank," he said.
The Financial Services Authority "and the Bank of England will monitor the financial system, we do that on a daily basis," Chancellor of the Exchequer Alistair Darling told the BBC today.
Theresa La Thangue, a spokeswoman at the FSA said the regulator is "watching the market," and declined to comment further.
The Bank of England also declined to comment.