The last thing the world's banks needed right now was a rogue trading scandal. In the past six months, they have been buffeted by large trading losses triggered by the subprime mortgage crisis in the US and market turmoil has raised fundamental questions about their business model. They are facing severe capital constraints and the prospect of an abrupt economic slowdown. Even before Société Générale's shock announcement, most bankers were already deeply apprehensive about the future.

Against that backdrop, the idea that one lone trader could apparently blow a €4.9bn ($7.2bn) hole in the world's leading equity derivatives houses could only add to the gloom. The revelation, accompanied by a Ä5.5bn emergency rights issue, is likely to undermine further investors' fragile faith in large banks' ability to manage complex trading risks.

"This will only add to the dark cloud already hanging over the European banking sector," one analyst said shortly after SocGen's announcement hit trading screens.

Rival executives were yesterday struggling to understand how a single trader could evade sophisticated risk management systems to build up such a large exposure. "It should not be possible," the head of one Wall Street bank said. But few were willing to take pleasure from a rival's distress.

"I don't think any of the banks right now feel any schadenfreude - we all feel very tied together as a sector right now," said a senior executive at a global bank. "Frankly, this is very bad news - we really don't need any big blows to sentiment, on top of everything else."

Others acknowledged that, in spite of huge improvements in risk management in recent years, no institution could be sure of stopping a determined rogue trader. "If it can happen at SocGen, it can happen to any of us," the chairman of one large bank admitted.

SocGen's failure is bound to add to scrutiny of banks. Mary Schapiro, chief executive office of the Financial Industry Regulatory Authority, the US body overseeing broker-dealers, yesterday said: "It is quite surprising positions of that magnitude would not have been monitored much more closely in this era of enhanced risk management."

SocGen joins the growing list of financial institutions seeking to raise fresh capital. Until now, this activity has been limited to large investment banks that have turned to sovereign wealth funds. But it was only a matter of time before a bank decided to turn to its own shareholders.

SocGen's rights issue will have made this harder for other banks to contemplate.