Later that day ratings agency Standard & Poor's said such talk was unfounded and reaffirmed the ratings of both banks, but investors remain shaken and the damage to market conditions has not improved much.
Europe has also seen its fair share of worries about the quality of its banks and insurance companies on the asset losses, providing fodder for the rumor mill.
On July 25 Germany's second-largest bank, HVB Group, posted a second-quarter loss and described business conditions as among the worst since World War II.
Economists are quick to point to the differences between this episode and the late summer of 1998, when Russia's debt default sent investors rushing out of risky assets globally and nearly brought the financial system to its knees when the hedge fund Long-Term Capital Management almost collapsed.
Conditions were so bad then that even the massive US government bond market -- considered the most liquid in the world and a refuge from turmoil -- nearly froze as dealers demanded higher and higher premiums to execute trades.
Eventually the Fed cut rates to restore investor confidence, even though the economy was in good shape.
The current pain in capital markets has yet to reach those extreme levels of distress, said JP Morgan's Glassman.
But he said the market sees conditions as deteriorating to the point where a crisis could happen "at any moment."
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