Some of the world's most aggressive hedge fund managers have stuck with substantial bets that the share price of Britain's largest financial institutions will fall, despite a four-month ban on short-selling imposed by the City regulator.

Paulson & Co, the US fund run by John Paulson, who made an estimated personal fortune of more than $3 billion by betting against the American mortgage market last year, is one of two hedge funds to have gambled heavily against the price of Barclays, the UK's third-largest bank. The fund yesterday disclosed a 1.18 per cent short position in Barclays, equating to just under £374 million of the bank's underlying value.

Lansdowne Partners, the hedge fund investor known for its long-term position against Northern Rock, has also been betting against Barclays, whose shares have taken a pummelling in recent months. The fund, which spent four years betting on the decline of Rock, now nationalised, is short in 0.5 per cent of Barclays. This means that it has sold shares worth £151 million, expecting to buy them back more cheaply at a later stage.

Short-sellers sell shares that they do not own and profit from the price difference when the shares fall. The practice, while legal, is facing unprecedented scrutiny. Aggressive short-selling against HBOS, Britain's biggest mortgage lender, was seen as sapping market confidence and helping to spur its takeover by Lloyds TSB last week.

Late last week, the Financial Services Authority (FSA) imposed a ban on hedge funds and other investors taking short positions against the British financial sector. Funds with existing positions are not allowed to add to their exposure. Any that did not sell out after the ban came into effect had to declare their holdings while the market was open yesterday.

The rush of funds to close out their short investments prompted a rally in FTSE 100 blue-chip stocks on Friday. Only the hardiest of funds would have held their nerve and retained their positions in the face of short-term losses as the market went against them.

Among other investors to disclose their exposures yesterday, Barclays Global Investors, Barclays' fund manager, said that it was short 0.37 per cent of St James's Place, the wealth manager.

Fortelus, a distressed debt specialist, had a disclosable short position of 5.33 per cent of London Scottish Bank, the lender.

The FSA has published a list of 32 banks, insurers and fund managers that are protected from short-sellers. It features some of the most actively traded financial firms, including Barclays, Royal Bank of Scotland and Bradford & Bingley, and comes amid keen scrutiny of funds that short sell.

There is no suggestion that the funds involved are engaged in any wrongdoing. The FSA said that it had acted temporarily because of the huge volatility in the market in recent weeks. The ban will end on January 16.

The regulator acknowledged yesterday that it had been approached by other companies seeking protection. It added F&C Asset Management and Aberdeen Asset Management, the fund managers, to the list. A spokesman said that the FSA would deal with individual requests based on the merits of each case.

It is understood that Man Group, the world's biggest hedge fund manager, has also approached the FSA seeking protection from short-sellers. Other companies, most notably in the property sector, have expressed concerns about being targeted.

Paulson said that it empathised with financial companies in difficulties and said that its investments were long-term and followed extensive research. “We support the FSA's desire to establish fair trading practices and to eliminate fraud and market manipulation. We will continue to comply with the FSA's requirements,” it said.

Sources close to Lansdowne emphasised that the fund placed a small number of long-term bets after extensive research.

Opponents of the crackdown argue that regulators are making scapegoats of hedge funds and argue that traditional long-term investors also have been selling their holdings.

According to DataExplorers, a research firm, less than 5 per cent of Barclays shares were on loan to short-sellers last Thursday and Friday, suggesting that short-sellers are playing a limited role in its share price decline.

— John Paulson is not the world's best-paid hedge fund manager for nothing: he was one of the first investors to spot the precipitous decline of the US housing market. Having established Paulson & Co in 1994, he set up a special fund to take positions against US mortgage securities in 2006. His fund returned 600 per cent last year, earning his investors huge profits and him a personal fortune and cult status. The married father of two has maintained a low profile despite his success, arguing that he does not want to celebrate while American homeowners are evicted from their properties. His fund is advised by Alan Greenspan, former chairman of the Federal Reserve. Mr Paulson, 52, was an elite Baker Scholar at Harvard Business School. He spent four years from 1984 in mergers and acquisitions at Bear Stearns.

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