Exchange traded funds tracking the U.S. financial sector lost more than 3% Friday after a much weaker-than-expected employment market update for August. A report that big banks are facing potential lawsuits over mortgage-backed securities and worries over Bank of America (NYSE: BAC) added to the morning losses.

Financial Select Sector SPDR Fund (NYSEArca: XLF) was down 3.1% at last check.

The Labor Department said nonfarm payrolls were flat in August while the previous two months’ data were revised lower.

Separately, the Federal Housing Finance Agency is set to file lawsuits against more than a dozen big banks over their roles in packaging and marketing toxic mortgage securities, The New York Times reported.

Bank of America shares were off 8%. The Federal Reserve has asked the financial-services giant to provide contingency plans if conditions worsen for the company, The Wall Street Journal reported. B. of A. accounts for 5.2% of the financial ETF.

The sector fund was down 17.5% year to date as of Sept. 1, compared with a 2.9% decline for the S&P 500, according to Morningstar.

Financial Select Sector SPDR Fund

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