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Despite further negotiations in Washington, the exact nature of plans to create a multi-billion dollar fund to purchase distressed assets remains unknown, reports the Financial Times.
As a result, many investors fear the final proposals will be watered down.
Matt Buckland of CMC Markets commented: "Traders will continue to digest the proposals in the coming days and there’s clearly a lot of sentiment involved as we are seeing a step change in the financial landscape as we have come to know it and as this is played out, perhaps further volatility is inevitable."
The main banking stocks in the capital all fell, with Barclays falling 2.3 per cent, Royal Bank of Scotland 3.5 per cent, HBOS 4.4 per cent and Lloyds TSB 2.1 per cent.
A US court recently gave Barclays the green light to buy the assets of the collapsed Lehman Brothers investment bank.
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