Banks ask chancellor for capital
When Treasury officials started working overtime last week on an emergency plan to inject new capital provided by taxpayers into our banks, the chancellor wasn't sure how our banks would react.
Would they proudly tell him to hop off?
Or would they put out the begging bowl?
Well last night a trio of the UK's biggest banks - Royal Bank of Scotland, Barclays, and Lloyds TSB - signalled to Alistair Darling that they'd like to see the colour of taxpayers' money rather quicker than he might have expected.
According to bankers, these three were disappointed that at a private meeting last night with Darling, held at his request, he didn't present to them a fully elaborated banking rescue plan.
One banker told me that what he called the Gang of Three of Barclays, RBS and Lloyds TSB told Darling to pull his finger out and finalise whatever it is he's eventually prepared to offer on taxpayers' behalf.
On paper, Lloyds TSB, RBS and Barclays don't have a pressing need for additional capital.
But they have become concerned that they are being weakened significantly by investors' perception that they are short of capital and their balance sheets need to be strengthened.
Also at the meeting were Mervyn King, Governor of the Bank of England, and Adair Turner, chairman of the Financial Services Authority.
And although the other big banks were represented, it was the chief executives of Lloyds TSB, Royal Bank of Scotland and Barclays - respectively Eric Daniels, Sir Fred Goodwin and John Varley - who formed a tightly-knit caucus and gave urgent focus to the discussion.
The three banks estimate that they may need around £15bn of new capital each, with £7.5bn paid up front and a further £7.5bn guaranteed by the Treasury that would be delivered if it became necessary.
Current rough estimates are that the capital injection could be as much as £50bn in total for all British banks.
As yet however, there has not been any detailed negotiation with the Treasury on the amount of taxpayers' money that may be invested in them.
There is no precedent in the UK for taxpayers to take such significant stakes in banks.
The Treasury has been working on a rescue plan along those lines, as I disclosed in my note on Saturday.
The three chief executives will talk again today, so that they can establish a common position, in advance of any further negotiations with the Treasury on a rescue package.
The Treasury's current thinking is that it would acquire preferred stock in the banks, that wouldn't carry voting rights. But it would also take warrants over the ordinary shares, which is a device for ensuring that taxpayers would benefit if the banks' share prices were to rise.
However, the chief executives also told Darling that a capital injection of this sort would not be enough to stabilise the banking system.
The steady withdrawal of funds by other financial institutions, the collapse of the wholesale funding market, remains a serious problem - which probably can't be solved by the Bank of England continuing to provide ever greater loans against an ever wider range of collateral.
In the next couple of years, many tens of billions of pounds of asset-backed securities have to be paid off or redeemed by British banks. So the banks want a commitment from the government that it will lend to them, whether or not they have collateral of the sort demanded by the Bank of England, to allow them to redeem these bonds.
The banks are not looking for a formal guarantee from the Treasury that it will protect wholesale depositors, which is what the Irish government gave to Irish banks, but they would like a formal pledge that it will fill any funding gap created by the steady ebbing away of wholesale funding
If such a commitment were not forthcoming, confidence in one or more British banks may continue to ebb away, to a potentially lethal extent - or so the banks fear.