Updated from 1:54 p.m. EDT

Banks lost ground at the start of the new week, with the KBW Bank index shedding 4.9%, as investors awaited more details on the so-called stress tests.

Among the day's headlines, former Merrill Lynch chief John Thain said he was unfairly blamed by Bank of America ( BAC) CEO Ken Lewis for controversial decisions, such as billions of dollars in bonuses that were given out as the company faced massive losses, The Wall Street Journal reported.

BofA and JP Morgan Chase ( JPM) gave up 1.9% and 1.8%, respectively, after visiting positive territory early on. Citigroup ( C) shares lost 3.8% to $3.07, and Wells Fargo shares decreased 5.1% to $20.30.

Shares of American International Group ( AIG), which rallied last week on earnings, fell 4.1% to $1.40. CIT Group ( CIT), which sank at the end of last week, gave up another 2.4% to $2.40 after rising more than 2% earlier in the day.

Due to regional bank failures , Bank of North Georgia, a subsidiary of Synovus Financial ( SNV), acquired all retail deposits of American Southern, and US Bancorp ( USB) bought First Bank of Idaho's deposits.

Synovus lost 7.4% to $3, while U.S. Bancorp shares were off by 4.4% at $18.14.

In analyst actions, RBC Capital slightly lowered its price target for regional bank holding company Western Alliance Bancorp ( WAL) to $6 from $7. Shares fell 3.1% to $5.30.

The U.S. government released the parameters of the so-called stress tests last week. Meant to determine the capital adequacy of the 19 biggest financial institutions, the report reiterated earlier comments from Treasury Secretary Tim Geithner that most U.S. banks already have capital levels "well in excess of the amounts required to be well capitalized."

However, some banks may need to raise some new funds as reserves have been hit by the economic and market downturn. Specifics weren't disclosed, although more information is expected to be available early next week.

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