Regulation doubts spark a slide on US bank stocks

US stocks sank yesterday, driven lower as the strengthening of financial regulation from Wall Street to Frankfurt crushed bank stocks, adding to worries about the sustainability of the global economic recovery.

In Washington, several Republicans will vote with Democrats to wrap up debate on the sweeping reform of financial regulations and move toward final passage, Senate Majority Leader Harry Reid said.

Officials in Germany added to the uncertain future for banks when they suddenly moved to ban naked short selling in the stocks of the country’s 10 most important financial institutions. Naked short selling occurs when an investor sells shares without borrowing them first.

The euro hit a four-year low following the news and amid ongoing fears that deep cuts to government budgets will dampen Eurozone growth.

The Dow Jones industrial average fell 114.88 points, or 1.08 per cent, to 10,510.95. The Standard & Poor’s 500 Index lost 16.14 points, or 1.42 per cent, to 1,120.80.