Royal Bank of Scotland has reported a half-year loss after taking a £733m provision for its exposure to Greek government bonds.
RBS - 84%-owned by UK taxpayers - reported losses after tax of £1.4bn for the six months to 30 June.
RBS also allocated £850m to cover claims for the mis-selling of Payment Protection Insurance (PPI).
Chief Executive Stephen Hester also confirmed the bank would cut about 2,000 jobs in the next 12 to 18 months.
"We are forced to stay efficient and that will mean ongoing tight attention to costs," said Mr Hester.
It is not known where the job cuts will fall.
RBS has cut 27,500 jobs since the financial crisis in an effort to cut its costs and improve profits.
The struggling bank led the falls on the FTSE on Friday, its shares opening down more than 13% before recovering. At 12:00 BST, shares were still the biggest faller - down around 5.8%.
Continuing worries about the impact of the eurozone debt crisis and faltering US economy on businesses have seen markets fall sharply since Wednesday.
"The banks are not going to make a profit in this sort of environment and their provisions are going to get worse. RBS has got a lot of problems," said John Smith, a fund manager at Brown Shipley.
The bank's statutory reported loss before tax was £794m, compared with a £1.2bn profit in 2010.
Despite the losses Mr Hester told BBC Radio 4's Today programme that the bank's restructuring programme was "going well".
He said the bank had been affected by ongoing problems with the global economy which had created "head winds which will effect us in different ways".
Royal Bank of Scotland lent money to the Greek government which might now not be paid back in full as a result of the country's debt crisis.
In its half-year results, the bank also confirmed a £1.25bn provision for losses at its Ulster Bank operations in Irish Republic and Northern Ireland.
However, the bank reported an improvement in its core operating profit to £1.7bn from £1.1bn in 2010.
In a conference call following the results, Mr Hester said the bank had exceeded its targets for business lending under the Project Merlin agreement with the government.
The bank's results said it had lent £44.2bn to UK business customers, of which £15.5bn went to small and medium sized companies.
The British Bankers' Association claimed that banks were "on track" to meet their overall lending commitments under the agreement, despite what it claimed were difficult economic conditions.
"The bank's efforts to encourage customers to come forward with borrowing proposals are set against the overall economic environment which remains challenging and business demand for credit which remains weak," said a spokesperson for the UK's major banks.