Falls in the share price of the big four banks contributed much to today’s 2.3% fall in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), along with energy and resources shares.

The fact the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) make up such a large portion of the index (30% or more), means that where their share prices go, the index generally follows.

According to analysts, the four banks are highly vulnerable to selling from global investors, and now it appears that short sellers are increasing their bets that the banks’ share prices have even more to fall.

ANZ’s share price is down 15%, CBA 11%, NAB 13% and Westpac 12% year to date.

They aren’t the only banks copping a hiding. US banks have taken an even bigger pasting so far this year, with Bank of America shares down 21.4%, Citigroup a similar percentage and JPMorgan Chase & Co down 14%.

Two things make offshore investors nervous about Australian banks – fears of overexposure to a booming housing market that is coming off the boil and a potential impact from a slowdown in China’s economy that could manifest itself in many different ways.

That could be Chinese investors that have been big property buyers in Australia leaving the market, or it could be the banks’ exposure to commodities and energy companies facing declining demand for their product as a result of a slowing Chinese economy. Both factors could see bad debts spiral upwards from record lows currently.

Another factor that is overlooked is that our banks also represent a significant weighting (21%) in international indices such as the Asia Pacific ex-Japan MSCI Index (PDF). Exchange traded funds (ETFs) that track or include that index are forced to sell down their holdings if unitholders sell down their ETF holdings, resulting in broad-based selling of the stocks in the index. Since the beginning of the year, the weighting of the big four in the index has dropped from 21.6% to 21%.

Adding to investors’ fears are the risk of more capital raisings, dividend cuts and tightening credit growth.

Foolish takeaway

The dividend yields currently on offer by the banks may look attractive – but that’s no compensation if they cut their dividends or share prices fall more than the yield. The time to buy the big four banks’ shares is coming – just not yet.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.