Opposition and back bench politicians called on regulators to extend a ban on the short-selling of shares in banks, which runs out in a fortnight.

The Financial Services Authority (FSA) imposed a temporary three-month prohibition on short-selling at the height of the banking crisis last September, in an effort to prop up the sector.

Vince Cable, the Liberal Democrat economics spokesman, yesterday led calls for the ban to be maintained beyond January 16. “I do think the banks are in a special position. We really don't want to see any more runs on bank shares right now,” he said.

Mr Cable said that he expected the FSA to take a measured approach rather than heed calls from some quarters for a permanent, outright ban, when it publishes a review of the rules. He said there was a danger of demonising all short-selling. “I would expect them to introduce new requirements, such as increasing the amount of collateral needed to borrow shares.”

John McFall, the chairman of the Treasury Select Committee, said the FSA would have to provide convincing evidence that the danger to the financial sector had passed before leaving bank shares vulnerable to short-selling again. “They would have to have very good reasons to lift the ban,” Mr McFall said. “The last thing the taxpayer needs is a further assault on financial stability.”

Gordon Brown, who used his new year's message to say that 2008 was the year in which the “old era of unbridled freemarket dogma was finally ushered out” is likely to take a keen interest in the FSA's review.

However, John Redwood, the Conservative MP who led David Cameron's economic policy group, said that the ban should be allowed to expire. The former Cabinet minister said that short-selling was a distraction and its prohibition had offered little or no relief from the downward pressure on bank stock. “The Government shouldn't be allowed to suggest that banning short-selling is somehow an easy solution. It isn't.”

Short-selling is where traders sell borrowed shares with the expectation they will be able to buy back and return the stock at a lower price later. The technique was blamed for worsening the autumn banking crisis.

When the ban was introduced, shortly after a run on HBOS stock, Hector Sants, chief executive of the FSA, said that short-selling had given “rise to disorderly markets”. Although short-selling was “legitimate” in normal conditions, he said, a temporary prohibition was needed “to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector”.

The effectiveness of the ban, which was imposed without consultation, has been questioned by research suggesting that it failed to curb price falls or reduce volatility. If the FSA extends the ban this could do long-term damage to the reputation of Britain's financial system, some hedge fund managers claim.

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