Short sellers try to exploit speculation of a French downgrade

About 20 per cent of the share turnover of the big four banks in the past few days has been linked to hedge funds.

Macquarie Group has been most targeted, with nearly 30 per cent of its turnover being caused by short selling, according to figures supplied by the ASX.

During the height of the global financial crisis, Australian securities regulators banned short selling of banking stocks. That ban was lifted in mid-2009.

Local bank shares took another roller-coaster ride yesterday and many were down as much as 4 per cent amid a global sell-off that caused some of Europe's biggest banks to suffer a rout.

A shift in market mood later triggered a rebound and the big banks finished higher.

Macquarie Group was worst hit. At one point it was down 6.2 per cent on concerns global economic turmoil and market panic could further erode its profitability. It ended the session down 1.9 per cent.

The global banking system was shaken on Wednesday night as shares of French banks were sold heavily in Europe because of spreading fears that France's AAA-credit rating could be cut, given the cost of bailing out Europe's troubled economies.

Societe Generale, the second-biggest French bank, was worst hit, its shares slumping as much as 21 per cent before closing down 14.7 per cent. Shares in BNP Paribas, France's biggest bank, fell 9.5 per cent.

But the three key credit agencies repeated that the outlook on their AAA ratings was stable. Also, Societe Generale "vigorously and categorically" denied all negative market rumours about its financial health.

Though European banks have been working to offload their exposure to Greek bonds in the past year, they still have a large exposure.

US banks were caught in the sell-off. Bank of America was down nearly 11 per cent, Citigroup 10.5 per cent and Goldman Sachs 10 per cent.