Bank of America Corp ($BAC) shares posted their steepest drop in 2-1/2 years on Tuesday as investors worried that the biggest U.S. bank might face big writeoffs.

The cost of insuring the bank's debt against default spiked to record levels.

Bank of America shares closed 1.9 percent lower at $6.30 after falling as much as 6.4 percent during the day. The shares pared losses, and credit swaps largely retraced, as a broader stock market rally helped assuage investor fears about the economy.

In a blog post on Tuesday, former securities analyst Henry Blodget said the bank could have $100 billion to $200 billion of writeoffs and troubled assets to sort through. These potential write-offs could eat into a substantial portion of the bank's $222 billion of book value.