Shares in Barclays and Royal Bank of Scotland plummeted as huge losses at two of America’s biggest financial institutions sparked fresh fears for the future of Britain’s banking industry. Barclays denied it faced financial problems and rushed out a statement to the New York stock exchange before trading closed. The bank, which is due to report its figures next month, said profits before tax for 2008 after all charges and costs should be well above forecasts of £5.3bn. The bank’s tier one capital ratio should be 6.5% at the end of the year and the total capital ratio will be 9.1%, putting it in line with many of its peers.

Analysts said Barclays had suffered a severe loss of confidence following speculation that it faces further losses on hundreds of billions of pounds worth of toxic ­investments. Concerns that the main City regulator had added to the bank’s woes by lifting a ban on short-selling was dismissed by the government, but were leaped on by opposition MPs as an indication of government incompetence. Some City traders said the dive in Barclays shares had been fuelled by rumours of the bank’s imminent nationalisation spread by short- sellers who profit from falling prices. Once again the nature of our global economies are highlighted. Will such domino effects tempt governments around the world to nationalize, to protect, and to impose trade barriers?