The head of one of America's biggest hedge fund industry groups has written to Mervyn King, Governor of the Bank of England, warning that a failure to free up an estimated $70 billion in assets frozen in Lehman Brothers' could trigger "systemic" losses.

Richard Baker, the head of the US Managed Funds Association (MFA), has warned delays could be “disastrous for UK plc”.

The plea comes on the eve of a meeting between the administrators of Lehman Brothers International (Europe) and regulators.

The former Congressman believes that the handling of the wind-up of Lehman Brothers and the carving up of its remaining assets is adding new uncertainty to already panicky global markets and releasing the bank's securities would give the market “a much needed boost of liquidity and confidence.”

In the letter, dated October 13, Mr Baker said: “Prime brokerages are already withdrawing their assets from the UK prime brokers."

The MFA estimates assets held by Lehman Brothers International under prime brokerage accounts to be between $40 billion and $70 billion across 1,300 accounts.

In the letter, Mr Baker urged the Bank to work with the Financial Service Authority and the Treasury to stop making European administrators liable for any wrongful move to distribute the assets to clients.

The plea by the MFA marks the latest in the saga of the collapse of Lehman Brothers, which went bust last month. Even though, the US Treasury Secretary, Henry Paulson, had tried to devise a rescue plan for the struggling Wall Street bank, it was allowed to fail.

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