Barclays lost a quarter of its stock market value last night, just hours after the ban on the short-selling of banking shares was lifted.

Shares of Britain’s third-largest bank plunged 32.4p to a ten-year low of 98p, wiping £2.71 billion from its value, amid speculation that Barclays will have to open its books to City watchdogs if it is to be allowed to benefit from the Government’s latest rescue package for the banking sector.

This is widely expected to be presented early next week and the Government will promise capital injections if necessary. The Treasury will also hold out the prospect of creating a “bad bank”, to take the toxic assets off the balance sheets of the big lenders. These would be ring-fenced and partly guaranteed by the Government. The move would come alongside the creation of a “good bank”, possibly Northern Rock, to stimulate lending.

Because Barclays previously snubbed financial support from the Treasury when Britain’s banks were recapitalised in the autumn, sources close to the negotiations believe that it will be excluded from further rescue packages – unless it opens its books to the Financial Services Authority.

There was also speculation last night that Barclays faces further write-downs in the value of collaterised debt obligations (CDOs) – specialist financial instruments to which the bank’s investment banking arm, BarCap, is heavily exposed.

Moody’s, the credit rating agency, downgraded the rating on a particular form of CDOs widely held by BarCap on Thursday and there have been rumours – denied by both parties – that last week’s resignation of Sir Nigel Rudd, the Barclays deputy chairman, was due partly to differences with the chief executive, John Varley, over how such instruments should be valued in the bank’s books.

A downgrade in the creditworthi-ness of some credit card companies – to which Barclays, as the leading card issuer, is exposed – was also said to have been behind the decline. Analysts at Royal Bank of Scotland’s broking arm suggested that Barclays needed an extra £12 billion of capital owing to a risk of rising impairment losses in its loan book later this year.

Barclays raised £7 billion in October and November, mainly in Qatar and Abu Dhabi, but came under attack when it emerged that it was paying more for this capital than RBS, Lloyds TSB and HBOS were for the £37 billion they received from Treasury at the same time. It is feared that, should Barclays have to raise new capital, it will be on far more onerous terms.

Barclays insisted last night that, when publishing its annual results next month, it would reveal a solid capital position. It added: “The Board of Barclays expects to report profit before tax well ahead of the £5.3 billion consensus estimate of analysts.”

City sources suggested that Barclays would make an ideal target for short-selling – selling shares of a company in the hope of profiting from a later fall in the price – after the lifting of the FSA ban imposed by the collapse of Lehman Brothers. One said: “Barclays is the obvious candidate. HSBC is just too big to short while Lloyds TSB, HBOS and Royal Bank of Scotland are now part-owned by the Government.”

The Treasury is preparing a package to stimulate bank lending that is likely to extend the assets that will qualify for government guarantees.Shares of other leading banks fell sharply, with RBS dropping 5.20p to 34.70p and Lloyds TSB 5.1p to 98.4p.

TROUBLED TIMES

August 9, 2007

European Central Bank injects emergency 95 billion euros into frozen overnight money markets - official beginning of the credit crunch. Barclays pushes on with attempt to buy Dutch bank ABN Amro

September 14, 2000

Run on Northern Rock

October 6, 2007

Barclays admits defeat in its attempt to buy ABN Amro, which falls to a consortium led by Royal Bank of Scotland

November 15, 2007

Writes off £1.7 billion on US sub-prime mortgages

August 7, 2008

Writes off another £2.4 billion in bad loans

September 14 2008

Holds talks to rescue Lehman Brothers but pulls out at last moment

September 15 2008

Lehman files for bankuptcy

September 17 2008

Barclays pays $1.75 billion for some of Lehman's North American operations

October 8 2008

Shuns government offer of capital in favour of private investors

October 31 2008

Reveals it is tapping investors from Abu Dhabi and Qatar for about £7 billion in fresh capital, infuriating its existing shareholders

January 13 2009

4,200 job losses

January 15 2009

The deputy chairman Sir Nigel Rudd quits