FSA chairman prepared to reinstate short-selling ban if necessary

Short-sellers were blamed for the chaos in the City back in September and, in particular, for the near collapse of HBOS’ share price which then led to its merger with Lloyds TSB.

As a result, the Financial Services Authority (FSA) imposed a temporary ban on short-selling in financial stocks until 16 January.

Short-selling is when an investor borrows company stock owned by another investor, then sells the shares in the market, hoping the price will drop. They then buy the shares back at a lower price.

However, since the ban was lifted last week, banking shares have taken a pounding but the FSA’s chairman, Lord Adair Turner, defended the return of short-selling and told the BBC there was no evidence that this practice had led to this week’s falls in banking shares.

Lord Turner added that there has been no indication that short-selling or abusive short selling is a major role, and if there is, he is prepared to reinstate the ban if necessary.

He also said that while mistakes were made by some individual bank heads, blame for the banking crisis cannot be pinned on greedy executives and reckless traders.

Since the ban was lifted last Friday, shares in RBS have lost almost 70%, while Barclays has fallen 55% over the same period.

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