Global equity markets tumbled overnight as bank shares collapsed on concerns the European Union may break up as a single entity.

Leading European and global banks such as Deutsche Bank, Credit Suisse, Barclay’s and Royal Bank of Scotland fell 6%, 9%, 17% and 15% respectively in price falls last clocked during the depths of the GFC of 2009.

Investors are punishing the banks as they are seen as most at risk from tightening wholesale funding markets, credit markets, and debt write downs that could materialise due to an economic contraction across Britain and Europe.

The increased prospect of abnormally low interest rates across Europe and Asia is another negative for banks globally, which has notable consequences for Australian investors who commonly favour the blue-chip banks on the ASX as the cornerstone of retirement portfolios.

The low cash rates in Australia are crimping the banks net interest margins and they have little room to cut term deposit rates further, while shaky global confidence and poor wholesale funding rates combine to making the lending environment tougher. This suggests the profit growth outlook for Australian banks may soon take a hit in tandem with their share prices.

Banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) are vulnerable in today’s interconnected world of capital markets and super-low inflation despite the emergency interest rates commonly used by central banks.

It’s not just confidence in the banks that Britain’s exit from the EU will shatter, but also the key piece of EEC legislation known as the Market in Financial Services Directive (MiFID).

This is what allows many global investment and financial services firms to passport services across European Economic Area countries from a head office commonly in London due to its position as a leading global financial centre.

The UK’s potential removal from MiFID’s passporting rights is already taking its toll on ASX-listed investment firms and insurers that rely on it to win business across the EU while domiciled in London.

Since the Brexit vote investment firms like Henderson Group plc (ASX: HGG) and BT Investment Management Ltd (ASX: BTT) have fallen 23% and 17% respectively, while QBE Insurance Group Ltd (ASX: QBE) is down 10% since it admitted that the removal of passporting rules would prevent it writing business to Europe-based clients as a UK registered entity.

Events such as the potential unwinding of MiFID regulations for UK-based global financial services businesses reliant on them are seismic changes that are likely to contract trade and encourage capital flight to safe-haven assets like government debt and gold.

All of this paints a bad picture for the outlook for global equity markets including Australia in my opinion. I warned of this several times prior to the referendum and repeatedly suggested investors were underestimating the risk of a Brexit.

Investors then should ensure they have cash on hand and be patient in looking to pick up top-quality ASX stocks that will be sold down in the months ahead if further uncertainty grips institutional investors in particular.

Some of the best businesses to pick up include annuities manager Challenger Ltd (ASX: CGF), or defensive businesses with exposure to a strong US dollar. Potential candidates on my watch list include healthcare giants CSL Limited (ASX: AMC) and Cochlear Limited (ASX: COH).

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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.