Josef Ackermann, the chief executive of Deutsche Bank, Germany's biggest bank, has warned that "numerous" European lenders would collapse if they were forced to book their losses on stricken sovereign bonds.
Mr Ackermann said that the value of billions of euros of loans has plunged to a level that could overwhelm smaller banks.
He told a conference in Frankfurt: "Numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels."
Mr Ackermann said market conditions were as febrile as the height of the banking crisis. "We should resign ourselves to the fact that the 'new normality' is characterised by volatility and uncertainty," he said. "All this reminds one of the autumn of 2008."
The volatility was demonstrated as Deutsche Bank shares tumbled 8.9pc as banks led a stock markets lower across Europe.
Deutsche Bank's shares closed at €23.79, valuing the company at €21.6bn (£18.9bn) - its lowest level since it completed a €10.2bn rights issue last October. The Stoxx Europe 600 banking index fell to its lowest level for 29 months. The DAX fell to its lowest level in two years.Traders said fears over the banks' exposure to European debt were exacerbated by the uncertainty of the US legal cases and regulatory reform.
The debt crisis has also squeezed bank revenues as mergers and acquisitions – as well as stock market listings – have been shelved. Trading figures have also fallen. Mr Ackermann said that bank profits will take a long time to recover.
"Prospects for the financial sector overall... are rather limited," he said. "The outlook for the future growth of revenues is limited by both the current situation and structurally."
Deutsche Bank has already warned that it could miss its target of €6.4bn pre-tax profits this year without a quick and sustainable resolution of the European debt crisis.
Even so, Mr Ackermann firmly rejected the proposal by Christine Lagarde, the new head of the International Monetary Fund, for another round of recapitalising European banks.
Mr Ackermann claims that the move would be "counterproductive" and argued that "a forced recapitalisation would give the signal that politicians do not themselves believe in the measures" they have implemented to bolster fragile eurozone countries.
Ms Lagarde has said banks need another capital injection to "avert contagion". She told reporters she believed it is "necessary to recapitalise European banks so that they are strong enough to withstand the risks linked to the debt crisis and weak growth".