Two cheers for the Financial Services Authority for deciding to lift the ban on short-selling of financial stocks. The regulator was under political pressure to maintain the ban, which was introduced during the panic over bank rights issues in September.

John McFall, chairman of the Treasury Select Committee, argued that the ban should stay and Vince Cable, the Liberal Democrat’s ever so sensible Treasury spokesman, said it should merely be tweaked.

But the FSA was right to scrap it. There was an arguable case for imposing the ban at the time, in spite of the serious distortion it introduced into the market and the damage it caused to many investors.

The markets were in such a febrile state that allowing investors to bet against falling bank share prices might, just might, have increased the risk of market manipulation and undermined otherwise robust banks.

But all the evidence suggests that the ban has had little or no effect in either curbing price falls or in reducing share price volatility.

The FSA has not gone as far as the US Securities and Exchange Commission, which has admitted that the similar ban it introduced was a mistake. Last week, Christopher Cox, the SEC chairman, said that there had been unintended consequences and the costs appeared to outweigh the benefits. On balance, the SEC would not do it again, he said.

The costs for the market as a whole include reduced liquidity. For many investors, the ban has been extremely damaging. Some popular trading strategies involve the possibility of creating short positions in bank shares as a hedge. Investors have simply had to stop using these strategies or risk inadvertently breaking the rule.

While agreeing to lift the ban on short-selling, the FSA has decided to maintain the rules on disclosure of short positions.

But the rules have been amended to make them a bit less burdensome. After the initial disclosure of a position, further announcements will be required only when the net short position changes by 0.1 per cent. At the moment, any change at all has to be disclosed.

The rules are still a bore for the funds and there is little evidence that they make any difference. City cynics suggest keeping the disclosure rules is just political face-saving by the FSA. If so, it is a small price to pay for the removal of the ban itself.

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