Fears of a new credit crunch caused share prices to plummet on both sides of the Atlantic as fragile banks struggle to raise funds in financial markets.

British banks were hit hard by the sell-off, with shares in state-controlled RBS plunging 11% to 21.95p, Barclays off 11.5% at 154p and Lloyds falling 9% to 29.8p. These were the lowest closing prices for all three banks since the first half of 2009, when Britain was in recession.

Shareholders were rattled by the revelation that the European Central Bank had lent $500m to an undisclosed eurozone bank that was struggling to raise dollars. The news came amid heightened fears that banks are becoming nervous about lending to each other.

The creditworthiness of European banks has become a major concern because of worries about their exposure to debt in countries such as Spain, Greece and Italy, which are struggling to contain a lack of international investor confidence.

German chancellor Angela Merkel and France's president Nicolas Sarkozy met in Paris on Tuesday in an effort to calm the latest bout of market anxiety, but their promise of enhanced "economic governance" across the eurozone in the future has provided little comfort to financial markets looking for a quick solution.

Five members of the eurozone, including Austria and the Netherlands, joined Finland today in demanding that Greece put up collateral against its latest bailout. This hardline approach increased fears among investors that the eurozone is unable to present a united response to its sovereign debt crisis.

The spread between the yield on Greek bonds and safe, benchmark German bonds has risen sharply in recent days, hitting 36% – close to the high of 40% reached in July before a second financial rescue package for Greece was agreed. Italian and Spanish bond yields also increased.

The US authorities are becoming increasingly alarmed that the eurozone crisis could trigger another credit squeeze: the Wall Street Journal said the Federal Reserve Bank of New York had asked for more information about whether the US bank units of big European lenders have reliable access to the funds they need.

Unconfirmed reports said US subsidiaries of European banks have been repatriating dollars to beef up the operations of their parent groups in Europe.

Nouriel Roubini, the New York economist renowned for predicting the financial crisis, added to the mood of crisis when he tweeted – only partly in jest – "when banks & deposits arent safe & govs are bankrupt time to buy canned food, spam, guns, ammo, gold bars & rush to your mountain log cabin".

Mike Trippitt at Oriel Securities said: "Everyone knows banks use bonds as collateral to secure short-term lending." He suggested that some institutions may want more collateral where loans are secured against the bonds of heavily indebted countries such as Italy. Silvio Berlusconi's government was forced to announce a new package of austerity measures at the weekend after the ECB intervened in financial markets to prop up the price of its bonds.

The New York Fed was reported as saying it was "very concerned" about European banks facing funding difficulties in the US, and that it was anxious not to see a repeat of the 2008 financial crisis, when international money markets seized up.

Morgan Stanley banking analyst Huw van Steenis published a research note, saying: "Bank funding remains a key source of risk for bank earnings … and a drag on economic recovery. We remain concerned that … the risks of a credit crunch in southern Europe are rising." But he added a note of optimism, claiming Europe's leading banks have on average raised 90% of the long-term funds they need for 2011, helped by "resolute ECB commitment to support the system". Samuel Tombs at Capital Economics said a more general worry was that banks will be hammered by an economic slowdown and further sharp falls in consumer spending, forcing them to make higher bad debt provisions. Tombs said: "The pattern this summer has been for banks to be knocked hardest whenever equity prices take a tumble. Banks are in the eye of the storm."

A rash of downbeat economic news from Europe, the US and the UK in recent days has underlined fears that the global economy is stuttering.

Investors around the world deserted riskier assets and sought out safe havens for their cash as the sell-off intensified today, helping the gold price to hit another record high of $1,826 an ounce. Gold has now risen by more than a fifth since the start of July when the latest bout of risk aversion in world markets began.

The price of oil fell sharply as investors began to bet on slowing demand from the US, the world's largest consumer of energy. A barrel of Brent crude was down more than $3 at $107, with the price of industrial metals such as copper and palladium also down.

Worries about the US economy were also exacerbated by a much weaker than expected reading on the Philadelphia Federal Reserve's manufacturing index, a key gauge of the strength of American industry. The index plunged from +3.2 in July, signalling modest expansion, to -30.7, the lowest level since March 2009.

Falling UK, US and German bond yields reflected not only their role as a safe investment, but also expectations of prolonged low growth and inflation in the western world, similar to Japan's experience since the late 1980s. Yields on Japanese government debt slipped below 2% in 1998, and have remained there ever since.