The fraud charge against Goldman Sachs could shatter confidence in the banking sector and precipitate a global crackdown on investment banking activities.

News that America's Securities and Exchange Commission has filed a lawsuit against the Wall Street bank sent a resilient Footsie into sharp reverse at the end of the trading session, as it dropped 81 points to close at 5743. The Dow Jones fell 118 points to 11025 in US trading.

More than $12bn (£7.7bn) was wiped off the stockmarket value of Goldman Sachs in the US, as its shares sank 15pc.

There are fears that the fraud charge could lead to the undoing of the bank. Only last week Goldman was forced into a lengthy defence of its actions in its annual report following allegations that it has profiteered during the credit crisis by taking bets against its own clients. It has also been accused of helping Greece massage its debts.

But the SEC lawsuit takes criticism of the bank to a whole different league. It will reopen the debate as to whether investment banks need tougher regulations and may lead to further calls to split up banks such as Barclays, which have High Street and investment banks.