Share values on the New York Stock Exchange closed down 2% after the announcement by US President Barack Obama that he plans sweeping new rules to curb the size and risk-taking of big banks.
Wall Street saw its worst one-day-fall since October, with stock prices also lower on Asian markets overnight.
At a news conference, Mr Obama said banks which had benefited from US taxpayers should not take unnecessary risks.
He also said that he would deal with regulations that allowed those banks to undertake risky transactions for profit.
Sources in the US financial industry said that Treasury Secretary Timothy Geithner has expressed doubts about the new proposals, but Mr Obama is determined to push through reforms.
'If these folks want a fight, it's a fight I'm ready to have,' he said at the White House.
White House economic adviser Austan Goolsbee said the proposals were not designed to be punitive.
He said they aimed to end the concept that some banks were 'too big to fail' and to show that when such firms 'mess up, they die'.
Britain's banks have said they are studying President Obama's proposals.
'We will be studying the proposals in detail to see where the US and international proposals align with what is already being discussed' in terms of reforms in Britain, the British Bankers' Association said.
In Dublin, AIB was down almost 5%, while Bank of Ireland fell more than 6%. UK bank shares are also down by as much as 7%.
