MPs are expected to grill hedge fund managers on the destabilising danger of short-selling today after it emerged that one of America’s top hedge fund managers made a profit of at least £270 million making down bets on Royal Bank of Scotland (RBS).

The New York-based Paulson & Co apparently made money betting that RBS shares would fall over the past few months.

It finally closed out most if not all of the bet last Friday, dropping below the disclosure threshold of 0.25 per cent.

Paulson has also short-sold shares in Barclays and Lloyds and continues to hold those positions.

The ban on new short-selling of financial stocks was put in place in October and lifted this month.

However, short positions already in place were allowed to continue throughout the ban period.

The Treasury Select Committee is taking evidence this morning from several prominent London hedge fund managers, including Christopher Hohn, of The Children’s Investment fund (TCI), and Paul Marshall, of Marshall Wace.

Short-sellers borrow stock, sell it in anticipation of price falls, wait, buy shares at the lower price and return them to the stock lender, booking a profit.

If they guess wrong, they book losses instead.