A bid to shore up plunging financial markets by banning the short selling of a company`s shares has been met with almost universal approval.

Financial Services Authority (FSA) chairman Sir Callum McCarthy was applauded at the annual City Banquet at the Mansion House as he outlined the crackdown.

Short selling is when investors borrow shares in a company to sell, hoping to buy them back later at a lower price and return them, pocketing the difference.

It is widely blamed as the prime factor in forcing Halifax Bank of Scotland to seek a takeover by Lloyds TSB.

Sir Callum said the ban would run for 120 days, during which time its effectiveness would be reviewed.

He said the present troubles had exposed the fact that very many of the world's best-regarded financial institutions had risk management that was not up to the job.

He said: "This is not a problem of cowboys, or fringe players. It is something which affects firms at the very core of our financial system, and it is something which requires deep and urgent attention."

He also called for greater openness about the position of each bank, and for more care to be taken by investors, plus tighter supervision by regulatory bodies.

The Lord Mayor of London, Alderman David Lewis, said: "We must react to the current very serious market crisis in a calm and measured way without responding with legislative and regulatory overkill which would harm London's long-term competitive position."

He said 70% of global financial services were contained in the EU/US blocks and 57 per cent of the world's GDP.

He added: "There is, therefore, no-one better placed than we are to deliver a future where markets around the world can do what free, well-regulated markets can do best - create widespread wealth and economic well being."

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