Barclays shares tumble, pressure to nationalise Lloyds and RBS grows

Barclays bore the brunt of the sector's latest slump, falling 19.7p to 53.2p during a volatile start to trading.

The newly-created Lloyds Banking Group, which dived as much as 47 per cent yesterday, fell 20 per cent before staging a recovery. The Dow is now below 8,000, while the FTSE 100 is close to dipping below the 4,000 barrier.

Investors have continued to flee the financial sector amid doubts over the Government's second bank bail-out and because of fears that more UK institutions will need to be nationalised.

Royal Bank of Scotland, soon to be 70 per cent owned by the Government, bucked today's downward trend with a rise of six per cent. Its shares fell 67 per cent on Monday.

A confidant of the Prime Minister today urged that RBS and Lloyds be fully nationalised to prevent their total collapse. John McFall, chairman of the Commons Treasury select committee, said the state should step in "for the sake of financial stability".

Mr McFall, who made his plea jointly with leading private equity chief Jon Moulton, warned that the banks would be crippled by uncertainty without 100 per cent nationalisation.

Lloyds now has a stockmarket value of £6billion, barely half the sum put into it by the taxpayer last October. RBS is worth less than £4billion.

In a joint article, Mr McFall and Mr Moulton wrote: "Let's get it over with - nationalise the pair of them."

Their call came as Germany's finance minister Peer Steinbrück became the first foreign politician to express doubts over the Treasury's plan to insure "toxic" loans. At a meeting of EU finance ministers in Brussels, he said: "I am sceptical that a national scheme will work."

Ministers could "do a Railtrack" by simply confiscating the banks without paying compensation to shareholders. Or they could increase the capital to 100 per cent with the banks' agreement.

Charles Goodhart, former chief policy adviser at the Bank of England, claimed nationalisation of the two banks would increase national debt enormously, from 45 per cent of GDP to about 300per cent. RBS has liabilities of nearly £2trillion.

Mr McFall and Mr Moulton said full nationalisation would allow credit to start flowing again. "They could lend a lot. This would temper the recession in the short term," they wrote.

But Tim Congdon, a former economic adviser to the last Tory government, warned that 100 per cent ownership would be "disgraceful". "These banks are not bust. They have immense capital and the Government has been effectively stealing from them," he said.