The bank's stock slumped 40 per cent at one point amid reports boss Sir Fred Goodwin and his rival bosses at Barclays and Lloyds TSB met with Chancellor Alistair Darling last night to discuss a possible capital injection for the sector.

The FTSE 100 Index slid 1 per cent, wiping out a shortlived rally that came after yesterday's 7.8 per cent fall.

RBS, which fell 20 per cent yesterday, was the worst casualty with Lloyds TSB down 16 per cent, and Barclays down nearly 10 per cent.

RBS declined to comment on its share price movement today or the reports of a plea for a Government capital boost.

But the bank confirmed Sir Fred was part of the team of banking bosses involved in last night's meeting with the Chancellor.

RBS raised £12 billion of extra capital earlier this year to help cope with multi-billion investment write downs linked to the credit crunch.

Barclays also raised £4.5 billion from existing and new shareholders to help shore up its balance sheet.

Lloyds TSB last month agreed to take over Halifax Bank of Scotland, which has suffered from its own funding problems.

There has been speculation that Mr Darling is considering moves to shore up UK banks with taxpayers' cash, but he did not give any firm commitments when he addressed MPs yesterday.

He said "all practical options must remain open" for dealing with the crisis, but added that it would be "irresponsible" to give a running commentary on plans.

London's leading shares started today's trading with some solid gains, but these fell away amid the fresh banking sector woes.

They deepened in Iceland today, where the government has stepped in to save another of the country's major banks, Landsbanki. Last week ministers were involved in a rescue of rival Glitnir.

Icelandic internet bank Icesave today stopped UK customers withdrawing or depositing money, according to a notice on its website.

The notice from the bank, which is part of Landsbanki, did not offer any explanation for the move but it came as Iceland's government grappled with a major crisis in its troubled banking sector.

Landsbanki later issued a statement saying it had been put into receivership, but stressing it had not gone into liquidation.

It said the Icelandic Financial Services Authority has appointed a receivership committee to ensure the continued operations of its commercial banking operations in Iceland.