Barclays’ shares hit a three-year low yesterday in another day of pain for the banking stocks, as further analysts’ downgrades and continued rumours of emergency central bank funding plagued the sector.

Analysts predicted that “things could get worse” if investors continued to run scared from UK bank stocks because of fears that the companies are hiding hits from investments in US sub-prime mortgages.

Alistair Darling, the Chancellor, yesterday failed to calm investors’ nerves despite claiming that the UK economy was strong enough to withstand the shock from the US. “There are grounds for believing that we will get through this. We have a strong economy. Its momentum will carry us through.”

However, Jonathan Pierce, an analyst at Credit Suisse, said: “It seems increasingly likely to us that recent events could escalate into a full-blown financial crisis. The issue is one of confidence.”

Mr Pierce called on the banks to come clean about the damage, if any, caused to their balance sheets by the sub-prime problems.

Shares in Barclays, Britain’s third-largest bank, dipped below 500p for the first time in three years, before recovering to close down 3 per cent at 521.5p. The FTSE 100 lost 69.2 points to finish at 6461.4, with banks among the biggest losers for the third consecutive trading day.

Investors were spooked by the departure of Charles Prince, the Citi-group chief executive, and the news that the world’s biggest bank may have to write down a further $11 billion (£5.3 billion) in assets. A negative note from analysts at HSBC put further pressure on the banks.

Barclays did not comment, but its management is thought to be assuring investors that there is no funding problem. Barclays will give a trading up-date on November 27.

Alliance & Leicester suffered after speculation that it had borrowed money from the Bank of England. The lender denied the rumour but its shares fell 29p to close at 701.5p each.

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