A report warned of "significant repercussions" from a financial sector restructuring in the wake of the economic downturn.
It further warned that HBOS's proposed takeover by Lloyds TSB carried a "significant risk" for jobs and growth in the city.
It came as MSPs heard as many as 60,000 job losses across the UK could result from the deal.
Meanwhile, a separate report, from the Fraser of Allander Institute, warned Scotland would be harder hit by the recession than other parts of the UK because of its reliance on the banking and financial services industries for jobs.
Its worst-case scenario suggested almost 117,000 jobs could go.
Senior council officials in Edinburgh gave a damning verdict on the potential extent of the damage done to the capital – especially if the HBOS deal goes through. They warned that Edinburgh, widely seen as the engine room of Scotland's economy, was uniquely placed to lose out.
The officials believe the potential loss of HBOS's main office from the capital could damage Edinburgh's international reputation as a major headquarters destination.
They are also concerned that the takeover of HBOS could hamper efforts to grow businesses in the city and progress major developments.
The report spells out how the financial sector employs 30,000 people – one in ten of the Edinburgh workforce – but is estimated to support a further 53,000 jobs in the capital.
The future of the financial sector in Edinburgh is seen as key to the delivery of some 7.5 billion worth of developments, which have been widely expected to take place, including the regeneration of the city's waterfront, an overhaul of Princes Street and the expansion of Edinburgh Airport.
Dave Anderson, the council's director of city development, said: "The finance sector is a major pillar of Edinburgh's economy, both in terms of wealth creation and employment.
"As Edinburgh has an abundance of major financial institutions, structural changes among these businesses are likely to have significant repercussions on the city and its economy.
"The extent to which the city's economy will be affected by the proposed merger of Lloyds TSB with HBOS is still unclear, but there is a significant risk of a medium term negative impact on jobs and the ability for businesses to acquire development capital for growth.
"Following the takeover of Scottish & Newcastle by the Heineken-Carlsberg consortium, the loss of a second major headquarters in a year for the capital could also affect Edinburgh's reputation as a desirable head-office location.
"The potential takeover of HBOS means that the capital may lose two FTSE 100 companies in a year.
"Although Lloyds TSB has pledged to keep the Mound as the new bank's Scottish headquarters, this could have significant negative repercussions on the reputation that Edinburgh has built as a desirable location in which to invest, and as a successful finance centre. It is also likely to result in the loss of high value managerial and professional jobs."
Mr Anderson said that recent months had shown "visible signs of economic slowdown" in the city's property and development market.
Concerns about the impact of the proposed HBOS takeover mounted as new figures showed unemployment soaring in Scotland.
The number of jobless rose by 13,000 between July and September, to 126,000.
The Scottish Parliament heard claims yesterday that the HBOS takeover could lead to 60,000 jobs being lost across the UK.
The SNP MSP Alex Neil, a member of Holyrood's finance committee and a leading critic of the proposed takeover, said the most conservative estimates of direct job losses were about 20,000, but that a further 40,000 jobs could be lost as a knock-on effect.
Other figures released yesterday revealed that house prices have fallen by up to 7 per cent in some parts of Scotland over the past year.
Speculation has mounted over potential rival bids for HBOS, despite the two banks insisting the proposed deal is the only viable one on the table.
The Scotsman has led calls for questions to be asked about the takeover, and politicians, led by Alex Salmond, the First Minister, have demanded that all possible alternatives to the takeover of HBOS are examined seriously by the Treasury.
Lloyds TSB shareholders are due to vote on the takeover next Wednesday and HBOS shareholders on 12 December.
Jim Spowart, the financier and founder of Intelligent Finance, who has been a key critic of the proposed "merger" between the two banking giants, said: "Major job losses at a company like HBOS will have a huge impact on every walk of life in Edinburgh.
"Everything from hotels and restaurants, to legal firms and taxi companies will be affected, and no-one is going to come out of it unscathed.
"The average salary of people working in the banking sector is much higher than the average wage in the city.
"It will take a long time for Edinburgh to recover from this takeover if it goes through, even though we don't know as yet how many jobs will be lost.
"The problem with HBOS being taken over is that when the financial sector does recover, there will not be the foundation to build on in Edinburgh that there was before."
The financial analyst Bryan Johnston, a director of Bell Lawrie in Edinburgh, said: "The loss of Bank of Scotland as a totemic emblem of the nation is clearly a huge disappointment, but the key issue is how many jobs will eventually be lost and at the moment we just don't know.
"It is important that we don't just see the HBOS issue in isolation, as other banks are also likely to have to make job cuts. There are problems for the entire financial services sector at the moment."
The property analyst David Alexander, the owner of Edinburgh-based firm DJ Alexander, said: "We are seeing the kind of downturn in Edinburgh at the moment that we haven't seen for more than 20 years.
"Edinburgh is so reliant on financial services that when it takes a hit, it is clearly going to have an impact on the whole economy of the city."
Meanwhile, the Labour Force Survey, which gives quarterly statistics, revealed that 126,000 people in Scotland – or 4.7 per cent – were now out of work.
The Scottish unemployment rate has risen by half a point over the past three months , although the UK rate is higher, at 5.8 per cent.
HOW THE NUMBERS ADD UP IN THE FINANCIAL HEART OF SCOTLAND
Number of people directly employed by the financial sector in Edinburgh.
Number of people employed in businesses supported by the financial sector, including accountancy, law and IT.
The number of Scotland's top 20 performing companies, including Standard Life and Scottish Widows, who are based in Edinburgh.
Edinburgh's rating in Europe's league table of top ten financial centres.
Turnover recorded last year by Royal Bank of Scotland, the city's biggest private employer.
Combined workforce of HBOS and Lloyds TSB in Edinburgh alone.
Percentage of Edinburgh's population holding a degree level or professional qualification.
Number of people studying in Edinburgh.
Value of major developments, including Caltongate, expected to be created in Edinburgh over the next 20 years.
Reliance on banking industry will see nation pay a high price in recession
SCOTLAND will be hit harder in the recession than other parts of the UK, with tens of thousands of jobs lost, economists have warned.
The latest forecast from the Fraser of Allander Institute said "exceptional" losses facing Scottish banks Royal Bank of Scotland and HBOS will have a lingering impact on many sectors. The think-tank concludes that the most likely outcome is for about 50,000 jobs to be lost by 2010, although its "worst-case" scenario warns of almost 116,600 jobs lost.
The impact of the downturn will hit families north of the Border hardest because of their reliance on banking and financial services industries.
"There is a higher probability that Scotland will go into recession in 2009 and that the effects may be felt harder here than the rest of the UK," the report warns. The institute predicts that, starting from 2007, Scotland's economy would decline for five years.
In its worst-case scenario, the Strathclyde University-based institute warns that as many as 72,600 jobs would be lost next year, on top of the 4,230 lost this year. In 2010, a further 44,000 jobs could go as the contraction of the financial system continues.
But its analysts have said they think their "base forecast" will be the most likely one to become reality. This would involve the loss of 50,000 jobs by 2010 and a negative growth rate of 1.14 per cent next year.
Official labour market figures were also unveiled yesterday, with confirmation that unemployment in Scotland has soared in the past three months by 13,000.
The unemployment figure of 126,000 is still 4,000 below the same period last year, although economists fear the total will rise in the next 18 months.
The institute's report points to even tougher times ahead. Scotland's financial services sector is less hardy than those in other parts of the UK to withstand the downturn, the institute warns.
And the reputation of Scottish bankers has been undermined by the losses at RBS and HBOS, which have been hit hard by the credit crunch.
The scale of losses from the subprime crisis facing RBS and HBOS are "considerable and exceptional" compared with other UK banks.
"The losses have pushed RBS and HBOS to the brink of bankruptcy. This outcome underlines the extent to which the lending behaviour of the two banks had ceased to be underpinned by the traditional risk-management practices that had led Scottish banking/bankers to be perceived as prudent and even 'canny'."
Brian Ashcroft, a professor in economics, said: "Scotland is disproportionately going to be hit." The academic, based at Strathclyde University, added: "The country is moving towards recession – and a recession means that the risk of losing your job is higher.
"Unemployment is predicted to rise and that is worrying, but what I can say is that the policy authorities are dealing with what is a very surprising financial crisis pretty well.
"The government should now think seriously about tax cutting – the issue is how much and in what form."