Shares of many major European banks tumbled yesterday as fear grips the market after the Dubai government said on Wednesday it will ask creditors of its investment arm Dubai World for a moratorium of at least six months on debt worth billions of dollars.
The government plans to restructure Dubai World in the face of global economic downturn.
At 1650 GMT (22:20 IST) yesterday, the DJ Stoxx European bank index was down 5 per cent at 218.1 points, its steepest one-day drop since mid-May.
It is estimated that a host of European banks face potential losses on an estimated $40 billion in exposure to Dubai.
Europe's biggest bank HSBC fell 4.8 per cent, Royal Bank of Scotland and ING both tumbled over 7 per cent and Lloyds Banking Group lost 6 per cent.
''Dubai World intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least 30 May 2010,'' said a statement issued by the Dubai Financial Support Fund (DFSF).