The head of the crisis-hit investment bank Bear Stearns has blamed short sellers and market manipulators for spreading negative financial rumours to induce a collapse of the 85-year-old Wall Street institution. 

Bear's chief executive, Alan Schwartz, told the Senate finance committee in Washington that his firm had been as well capitalised as its rivals – yet it suffered an evaporation of confidence last month fuelled by falsehoods. 

'As an observer of the markets, it looked like more than just fear,' said Schwartz. 'It looked like people wanted to induce a panic.' 

Schwartz told senators that he never dreamt a run on the bank could happen so quickly. Bear lost $10bn of liquidity in a single day, with its financial resources plummeting from $12.4bn to $2bn on March 13 as customers, trading partners and investors fled. 

'The minute we got a fact out, a different set of rumours would start,' said Schwartz, who testified that the 'nature and pattern' of the damaging whispers made him suspicious they were being circulated deliberately. 

Schwartz urged regulators to investigate the debacle: 'There are laws against market manipulation and there used to be laws against spreading rumours about banks.' 

Bear, which employs 14,000 people, was rescued from bankruptcy through a hastily arranged takeover by rival bank JP Morgan, which only agreed to do the deal if the Federal Reserve stood behind the troubled bank's riskiest assets with $30bn of public money. 

During a five-hour hearing on Capitol Hill, the Securities and Exchange Commission's chairman, Christopher Cox, assured lawmakers that any allegations of market manipulation would be taken seriously. 

More Than $10bn Of Bear's Liquidity Evaporated In One Day, US Senate Banking Committee Hears