Banks stocks have had a rough Tuesday as markets worried about how soon President Donald Trump would deliver on his pro-growth promises.
The top decliners in the KRE were shares of Western Alliance Bancorporation and Pacific Premier Bancorp.
The financials sector fell 2.87 percent, marking its worst daily performance since June during the Brexit lows, when it shed 2.78 percent.
The latest fall came as 10-year Treasury yields declined Tuesday, putting pressure on banks. Weaker yields lead to lower interest rates on loans, which hurt financial stocks, particularly banks. Investors also turned their eyes to a key House vote.
House Republicans' success or failure of passing their health bill on Thursday will let investors know the time frame for tax reform.
Financials had led the market rally since the Nov. 8 election on bets of increased economic growth from promised tax reform, deregulation and infrastructure spending.
"Bank stocks moved up dramatically because of the scaling back of regulation, the 10-year Treasury yield and the economy gaining momentum," said Quincy Krosby, market strategist at Prudential Financial.
"There are also questions from the market on whether Republicans will be able to pass its health-care plan," Krosby said. "The success or failure could act as an indicator on whether we get tax reform."
—CNBC's Fred Imbert contributed to this report.