EDINBURGH'S FUTURE AS ONE of the top five financial services centres of Europe is more endangered by "hysterical" market commentary than by any threat to Scotland's largest financial institution, the capital's pre-eminent business leader has warned.

After a week of grim market speculation caused by the slumping share prices of Scotland's two biggest banks - RBS and HBOS - Ron Hewitt, the chief executive of Edinburgh Chamber of Commerce, lashed out at media suggestions that mismanagement of the banking giants had made them vulnerable to foreign takeover, and had endangered Scotland's international reputation for financial prudence and good judgement.

Although shares in RBS rallied by 10% in Friday trading to 197p, and shares in HBOS by 5.13% to 282p - too late to encourage investors to take up the latter bank's planned £4 billion cash call - sentiment surrounding the banks, said Hewitt, was "neither justified nor helpful in the current economic climate".

Next month marks the first anniversary of formal shareholder approval of the RBS-led consortium's bruising takeover battle for the ailing Dutch bank ABN Amro. The deal's timing on the brink of the credit crunch, and perceived "overpayment", would have disastrous consequences on market confidence in RBS. Hewitt said that a tendency to "talk up doom and gloom" was in danger of becoming self-fulfilling.

Said Hewitt: "Nobody expects the media to create false optimism but we are not in the situation where our economy has suddenly collapsed. These issues are all down to confidence and how that has been dented by poor banking decisions, primarily in the US. The recapitalisation of both the major Scottish players and other financial houses has put them in a position of considerable strength compared to international competitors. Whilst the share price might have tumbled there is no significant depression of the balance sheet.

"Both of these companies have performed exceptionally well for Scotland over the years and business leaders need to stand four-square behind them, to recognise the excellence of their performance and their value to the Scottish economy."

Hewitt also defended HBOS's decision to cut its workforce by 160, describing it as "prudent financial management as all companies have to do from time to time."

"The job losses represent less than half a percent of HBOS's workforce, largely through natural wastage as parts of the SME-facing business are merged. I don't see the slightest suggestion that we should be concerned for the company and its survival as a Scottish-based company."

With Scottish financial institutions and their leadership facing criticism of unprecedented severity, John Swinney, cabinet secretary for finance, declined to comment on the fortunes of individual companies but authorised his spokesperson to say: "Scotland's financial services industry makes a critical contribution to increasing sustainable economic growth. Financial services, and indeed Scotland's economy more generally, is not immune from global economic conditions, but has continued to show encouraging signs of resilience."