HSBC said its exposure to the scheme arose from loans it had provided to large clients such as hedge funds.
It was announced on Monday that the alleged fraud had forced the Chais Family Foundation, which gives away about $12.5m annually to Jewish causes, to
Avraham Infeld, the foundation's president, said: "The entire fund was invested through Mr Madoff, and as a result the fund has been completely obliterated."
Infeld said all five staff at the organisation's headquarters in Jerusalem would lose their jobs.
Banks in Europe, Asia and the United States have been affected.
More than $10bn of potential losses have been reported by firms still reeling from the effect of the US sub-prime mortage crisis.
Jeremy Batstone, head of research at Charles Stanley, Britain's largest stockbroker, said that the scandal was very damaging to reputations in the financial world.
"It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades"
Bramdean Alternatives Limited
"The last thing investors wanted as come to the end of what has been a cathartic year for the financial industry was the revelation of an alleged fraud of this nature," he told Al Jazeera.
"The size is unprecedented and doubtless will be very painful, not just for those investors who are involved directly, but for all investors who are concerned about the places in which they have invested their money, the fund management groups."
Shares in Santander, the biggest bank in Spain and the second-largest in Europe after HSBC, plunged on Monday after the lender said it had an exposure of more than $3bn dollars to Madoff Investment Securities in New York.
Royal Bank of Scotland said it could lose nearly $600m, while France's Natixis investment bank, already harmed by losses in the sub-prime mortgage market, put its maxiumum exposure at more than $600m.
Japanese financial giant Nomura said it could lose more than $300m dollars and officials in Seoul said South Korea's financial institutions had about $95m at risk.
Swiss newspaper Le Temps reported that private banks in Geneva could lose up to $5bn because of the alleged scam.
Bramdean Alternatives Limited, a British investment fund which said it had put about $31m in Madoff's company, said that the scandal raised "fundamental questions" about the US regulatory system.
"It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the Madoff funds in good faith," it said in a statement.
The scandal comes at a time when hedge funds are suffering from poor performance, impairing their vow of yielding money whichever way the market turns.
Man Group, the world's largest listed hedge fund manager, acknowledged it was exposed to what it called "a systematic and comprehensive fraud" to the tune of $360m.
The AIMA global hedge fund trade association in a statement said it was "very disturbed" by the case, asking for "early and public disclosure of all facts about what went wrong".
"Clearly, lessons must be learned, restitution must be secured for investors, and processes/safeguards must be improved to prevent such a situation recurring."