The collapse of one of the US's biggest investment banks has continued to rock trading as London's leading share index opened with another hefty fall of more than 1%.

The Lehman Brothers' collapse aided a 4% plunge in the share index on Monday and the FTSE 100 Index opened 74.7 points down at 5129.5 on Tuesday.

Of the banks in talks to take on some of Lehman's operations, Barclays was one of the biggest fallers, dropping nearly 5%.

Chancellor Alistair Darling told BBC Radio 4's Today programme: "Inevitably there is bound to be turbulence, there's bound to be a bit of uncertainty.

"The answer to that of course is that we need to ensure that, as far as we reasonably can, we get as much openness, banks declaring their positions, so that people can get certainty and therefore are more likely to put their money back into bank shares and so on."

Mr Darling said it was important to weigh up the risks of whether it was right to let a bank "go under".

He said: "The test that we apply, and the test that I think the Americans apply, in relation to any institution, is if it went down, would there be a systemic risk - in other words would it have a knock-on effect into the rest of the system."

The US "clearly tried" to get consortium banks interested in Lehman but the banks decided they could not take it on, Mr Darling said.

He added: "As far as this country is concerned, that's the test I applied to Northern Rock, that's the test I would always apply because we all have a duty to ensure that we maintain the integrity of the financial system because it is fundamental to our economy."

One of Britain's biggest mortgage lenders, Halifax Bank of Scotland, was the biggest blue chip casualty, down more than 11%. It followed a fall of nearly 18% for the stock the previous day.

Insurers were also on the back foot, thanks to fears over the financial health of US insurance giant AIG. Prudential lost more than 4%, and Norwich Union owner Aviva fell by more than 3%.

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