The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has plunged 1.6% to close at 5,004.5, after an early selloff gathered steam, despite early indications our market was due for a fall of around 0.2%.

Source: The Age

Source: The Age

Offshore leads were hardly inspiring, with the Dow Jones Industrial Average up 0.1%, the broader S&P 500 flat and the tech-heavy NASDAQ down 0.1%.

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) were the main culprits today, losing 3.4%, 2.3%, 2.4% and 3.0% respectively.

ANZ, in particular, has had a shocking week, after falling 5.2% on Thursday last week before the Easter long weekend. In the past week, shares are down 11% and 37% since March 2015. The current share price of $23.20 is a far cry from the 52-week high of $37.25 reached just over a year ago.

Investors buying into the banks last year on the basis that their stellar 20-year run was going to continue have clearly been proven wrong.

ANZ has been sold off after announcing an unexpected rise in bad debt provisions due to exposure to the resources sector, and investors obviously fear that the other major banks may be forced to reveal similar increases in bad debts, given they are also exposed to the resources sector and its support industries, such as mining services.

Foolish takeaway

For a number of years, we have been warning that the banks were overpriced and that investors were ignoring the cyclical nature of the banking sector and the risks the banks are exposed to.

The good news is that the banks’ share prices are getting closer to Buy territory, but investors may want to exercise patience in jumping in, with more falls likely.

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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.