UK financial watchdog the Financial Services Authority (FSA) has launched an investigation into trading in UK financial shares this week.

Sally Dewar, managing director, wholesale and institutional markets at the FSA, said: “There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short selling. We will not tolerate market particiapants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them.”

HBOS’s (the parent company of Halifax and Bank of Scotland) share price fell by as much as 17% at one point on Wednesday after rumours of liquidity problems at the bank spread though the markets. The Bank has strongly denied the rumours were true.

Commenting, Kevin Mountford, head of savings at price comparison site moneysupermarket.com, said: “HBOS has a very strong business – and rumours that it is on its last legs are ridiculous.

“The world of banking has many different business models that differ considerably, and it is just plain wrong to tarnish all banks with the Northern Rock brush.

“Foolish rumours like these could cause panic among savers who should be reassured that HBOS, with its high interest savings and current accounts, is a far better home for your money than under your mattress.”