Short selling worries banks

There are good reasons equity investors obliterated the share price of Royal Bank of Scotland: its lending losses are horrendous, management barely relevant and its solvency supported only by the fact that everyone recognises all RBS liabilities in reality are UK government liabilities.

Whether the assault on the shares of Barclays, which insists it will report a decent profit, is well informed we can only wait and see.

But since one thing Britain did in recent days was lift the ban on short selling stock, banks in Australia are worried.

Chief executive of the Australian Bankers Association David Bell told The Australian the developments on international markets warranted the ban remaining in place to restore systematic confidence.

"The ABA supports the extension of the temporary ban on short selling of financial stocks in Australia, especially given the recent and overnight activity in the UK following the lifting of the ban in that jurisdiction," Bell said.

The newspaper reported unsourced estimates that up to 10 per cent of Westpac's issued shares are currently in a "short" position, while five per cent of Suncorp's capital is the subject of lending agreements.