"If that happened, then the share price would likely fall as the hundreds of thousands of investors who have bought bank shares as a yield play because of cash interest rates being so low, would look elsewhere."
Would look elsewhere ? Not necessarily so. These hundreds of thousands of investors will still be considering the risks associated with "elsewhere" investments vs banks when the economic climate deteriorates.
The government has the legal power to force the banks to increase their capital base, whether the banks like it or. Whether the government will do that or not will come down to its political courage.
