Loans crisis sees banks' share value plunge £14billion as world's biggest bank holds emergency meeting

Worst affected is Barclays, down 11 per cent amid market rumours - later denied - that it had approached the Bank of England for an emergency loan.

Shares in Royal Bank of Scotland lost 8 per cent over the two days, falling to 475.5p, while HSBC, Britain's biggest financial firm, lost 4.7 per cent to 906p.

The FTSE 100 Index fell 55.5 points to 6530.6 - down 2 per cent in a week that has seen a return of the climate of fear sparked by September's run on Northern Rock.

Markets worldwide are feeling the aftershocks from a recession in America's property market that has led to billions in losses at some of Wall Street's largest banks.

Brokerage Merrill Lynch, whose logo is a thundering bull, this week ousted its chief executive Stan O'Neal after losses of more than £4billion on investments linked to socalled sub-prime mortgages.

These are loans made to poor families who have little chance of paying them back.

Analysts fear Merrill could be forced into another £5billion of writedowns related to its heavy bets on the mortgages.

Banking giants including Citigroup and Switzerland's UBS have also been hit by concerns over their sub-prime involvement.

Executives from Citigroup are said to be holding an emergency meeting this weekend amid fears of escalating bad debts.

Analysts fear Britain's top players could face similar problems.

If the credit crunch intensifies, profits at Barclays and Royal Bank of Scotland will face more pressure.

Sandy Chen, an analyst at brokerage Panmure Gordon, said: "There is a clear path, we think, that leads from the current turmoil in credit markets to major trading losses for the UK banks with U.S. mortgage and global markets exposure."

Mr Chen said that if the UK's housing market deteriorates further, the finances of the country's top banks could come under additional pressure.

"If UK house price falls begin to gain momentum, the patterns seen in the U.S. could be replicated in the UK,' he said.

Barclays is thought to be particularly vulnerable because more than a third of its earnings come from its Barclays Capital investment banking unit.

Headed by Bob Diamond, one of the City's highest-paid executives, BarCap has made billions betting on exotic financial market instruments, but some worry this has left it especially exposed to the market turmoil.

Barclays's share price took a heavy hit in August after it emerged it had twice approached the Bank of England for emergency overnight loans worth £1.6 billion.

The bank declined to comment further last night.

The Bank of England warned last month that stock market investors are being overly optimistic about the outlook, and that financial institutions are vulnerable to further setbacks in the coming weeks.

That is because banks worldwide are still hoarding cash, rather than lending it out, because they're worried they could suffer further hits from America's slumping property market.

The main British casualty of the credit crunch so far has been Northern Rock.

The Newcastle-based bank was particularly vulnerable to the evaporation of credit in world markets because it relied on other lenders for three-quarters of its funding.

A dash for growth in the first half of the year, led by chief executive Adam Applegarth, left it even more exposed when the crisis hit in August.

After it emerged that Northern Rock had gone to the Bank of England for an emergency bail-out, customers queued to withdraw savings.

It took an official guarantee for all customer deposits by the Treausry to stop the panic, though savers are thought to have withdrawn billions since.

Northern Rock has now racked up £22.8billion of loans from the Bank of England - all backed by the taxpayer.

Its ever-growing debt is widely expected to top £30billion before a buyer can be found.