Shares of major banks fell sharply on Monday amid a broader decline that followed the downgrade of U.S. debt by rating firm Standard & Poor's and heightened concerns over Europe's own debt crisis.

S&P lowered its rating on U.S. debt by one notch on Friday, citing a lacks of confidence that political leaders will take the steps needed to avert a long-term fiscal crisis.

The downgrade of long-term debt issued by the U.S. government affects the banking and lending industries because many interest rates are pegged to the yields on Treasury securities. U.S. commercial banks own about $1.7 trillion of U.S. Treasury securities.

Morgan Stanley warned on Monday that the debt rating downgrade could have a significant impact on financial markets and the global economy, ultimately hurting its business.

Its shares fell $2.90, or 14.5 percent, to close at $17.12.

Baird Equity Research analyst David George offered a more upbeat take on the potential fallout from the downgrade in a research note Monday.

The analyst said that the downgrade shouldn't be a meaningful issue for U.S. banks, noting that banking regulators have said that exposure to sovereign debt isn't seen as a risk factor in determining a lender's capital requirements. That means the downgrade on U.S. debt will not have any impact on bank capital levels, George concluded.

Still, the downgrade further erodes the confidence consumers and businesses have in the economy, which could slow economic growth.

"To the extent economic growth slows further, it will obviously have an impact on corporate profitability and employment trends, which could result in credit costs remaining stubbornly high over the coming quarters," George wrote.

The analyst recommends that investors favor banks that can maintain high profitability, solid capital levels and have the potential to return capital over time, given the likelihood for weaker revenue growth.

George highlighted a few lenders that fit the criteria: U.S. Bancorp, Wells Fargo & Co., PNC Financial Services Group and JP Morgan Chase & Co.

Those banks weren't spared in the broader sector sell-off on Monday, however.

Shares of U.S. Bancorp fell $2.13, or about 9 percent, to $21.59; JP Morgan slid $3.54, or 9.4 percent, to $34.06; PNC Financial Services fell $4.19, or 8.2 percent, to $46.99; and, Wells Fargo shed $2.28, or 9 percent, to $22.93.

Elsewhere in the sector, Genworth Financial Inc. declined $1.15, or 17 percent, to $5.63; BB&T Corp. fell $1.94, or about 8 percent, to $21.37; SunTrust Banks Inc. dropped $2.98, or 14 percent, to $18.53; and, Bank of America Corp. slid $1.66, or about 20 percent, to $6.51.

Bank of America's shares also were weighed down after American International Group Inc. disclosed it is suing the lender for more than $10 billion, claiming the bank cheated it by selling residential mortgage-backed securities that were overvalued.