Shareholders in UK banks have seen their share prices smashed, as fear and uncertainty reign in the aftermath of Britain’s decision to leave the European Union last week.

And it offers a valuable lesson for shareholders in Australia’s 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).

Here’s a brief snapshot of the carnage in financial companies on the UK market overnight:

Company Price fall
OneSavings Bank PLC (LON: OSB) -33.1%
Shawbrook Group PLC (LON: SHAW) -30.0%
Virgin Money Holdings (UK) PLC (LON: VM) -25.5%
Barclays PLC (LON: BARC) -17.4%
Royal Bank of Scotland Group plc (LON: RBS) -15.4%
Close Brothers Group plc (LON: CBG) -14.0%
Schroders plc (LON: SDRC) -13.7%
Legal & General Group Plc (LON: LGEN) -11.4%
Braveheart Investment Group plc (LON: BRH) -10.2%
Hargreaves Lansdown PLC (LON: HL) -9.0%
Lloyds Banking Group PLC (LON: LLOY) -9.0%
St. James’s Place plc (LON: STJ) -8.1%
Investec plc (LON: INVP) -7.2%
Provident Financial plc (LON: PFG) -6.7%
Standard Chartered PLC (LON: STAN) -6.7%

Source: Google Finance

It seems clear that investors are worried about the UK economy falling into a recession and the various impacts on the banks the Brexit could cause.

It’s an interesting lesson of what could happen should Australia head into a recession – and how leveraged banks are to Australia’s economy.

We haven’t had a recession in 24 years (the last was in 1991/92) in Australia, so it can be difficult for many investors to envisage the share price of say Commonwealth Bank losing a fifth of its value in a single day.

And for investors with a majority of their portfolios spread across the big four – they should realise that they are not diversified or protected against a single event such as a recession. Holding some defensive stocks in your portfolio would offset some of the losses from any bank holdings.

Foolish takeaway

If your portfolio or SMSF is chock-a-block full of bank shares, now might the perfect time to look at other alternatives, including defensive stocks as we outlined earlier today.

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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

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.